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 June 30, 2021

OR

☐ 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 July 29, 2021, the number of shares of the registrant’s Common Stock outstanding was 55,116,095.

GREAT WESTERN BANCORP, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

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	44
Item 3. Quantitative and Qualitative Disclosures About Market Risk	74
Item 4. Controls and Procedures	75
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	76
Item 1A. Risk Factors	76
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	76
Item 3. Defaults Upon Senior Securities	76
Item 4. Mine Safety Disclosures	76
Item 5. Other Information	76
Item 6. Exhibits	76
SIGNATURES	78

2-

EXPLANATORY NOTE

Except as otherwise stated or the context otherwise requires, references in this Quarterly Report on Form 10-Q to:

•"we," "our," "us" and "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;

•"ACL" refers to allowance for 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, 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" 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.

3-

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as "anticipates," "believes," "can," "could," "may," "predicts," "potential," "should," "will," "estimate," "plans," "projects," "continuing," "ongoing," "expects," "views," "intends" and similar words or phrases. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

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

•the severity, magnitude and duration of the COVID-19 pandemic, including the recent surge in infection due to the Delta variant, 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;

•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 pandemic;

•current and future economic and market conditions in the United States generally or in our states in particular, including the rate of growth, employment levels and recent increases in the rate of inflation;

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

•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 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 intangible assets, or any adjustment of the valuation of our deferred tax assets;

4-

•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;

•increased costs of compliance associated with the changes in regulation and the regulatory environment;

•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, 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, 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.

5-

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

GREAT WESTERN BANCORP, INC.

Consolidated Balance Sheets

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

	(Unaudited)
	June 30, 2021		September 30, 2020
Assets
Cash and due from banks	$	154,046	$	150,085
Interest-bearing bank deposits	1,602,299		282,802
Cash and cash equivalents	1,756,345		432,887
Securities purchased under agreements to resell	104,523		—
Securities available for sale	2,181,514		1,774,626
Securities held to maturity	202,445		—
Loans, net of unearned discounts and deferred fees, including $545,149 and $655,185 of loans at fair value under the fair value option at June 30, 2021 and September 30, 2020, respectively; and $1,377 and $12,371 of loans held for sale at June 30, 2021 and September 30, 2020, respectively	8,477,783		10,076,142
Allowance for credit losses ¹	(270,298)		(149,887)
Net loans	8,207,485		9,926,255
Premises and equipment, including $600 of property held for sale at both June 30, 2021 and September 30, 2020	117,240		119,054
Accrued interest receivable	36,245		54,658
Other repossessed property	11,498		20,034
Cash surrender value of life insurance policies	183,575		31,658
Net deferred tax assets	84,981		47,709
Other assets	184,378		197,558
Total assets	$	13,070,229	$	12,604,439
Liabilities and stockholders’ equity
Noninterest-bearing	$	2,958,488	$	2,586,743
Interest-bearing	8,579,289		8,422,036
Total deposits	11,537,777		11,008,779
Securities sold under agreements to repurchase	80,167		65,506
FHLB advances and other borrowings	120,000		195,000
Subordinated debentures and subordinated notes payable	108,933		108,832
Accrued expenses and other liabilities	62,283		63,389
Total liabilities	11,909,160		11,441,506
Stockholders’ equity
Common stock, $0.01 par value, authorized 500,000,000 shares; 55,116,095 shares issued and outstanding at June 30, 2021 and 55,014,189 shares issued and outstanding at September 30, 2020	551		550
Additional paid-in capital	1,184,638		1,183,647
Retained earnings	(38,721)		(57,169)
Accumulated other comprehensive income	14,601		35,905
Total stockholders' equity	1,161,069		1,162,933
Total liabilities and stockholders' equity	$	13,070,229	$	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.

See accompanying notes.

6-

GREAT WESTERN BANCORP, INC.

Consolidated Statements of Income (Unaudited)

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

	Three Months Ended June 30,				Nine Months Ended June 30,
	2021		2020		2021		2020
Interest income
Loans	$	93,328	$	109,227	$	300,925	$	342,014
Investment securities	8,642		10,532		25,079		33,359
Federal funds sold and other	654		112		1,214		1,278
Total interest income	102,624		119,871		327,218		376,651
Interest expense
Deposits	3,505		10,011		13,976		50,818
FHLB advances and other borrowings	867		2,539		2,603		8,807
Subordinated debentures and subordinated notes payable	789		1,070		2,398		3,619
Total interest expense	5,161		13,620		18,977		63,244
Net interest income	97,463		106,251		308,241		313,407
(Reversal of) provision for credit losses ¹	(20,699)		21,641		(13,800)		101,539
Net interest income after (reversal of) provision for credit losses	118,162		84,610		322,041		211,868
Noninterest income
Service charges and other fees	9,005		7,731		27,228		28,328
Wealth management fees	3,477		2,773		9,688		8,859
Mortgage banking income, net	2,157		2,422		9,937		5,179
Net gain on sale of securities and other assets	—		—		247		—
Derivative interest expense	(3,117)		(3,040)		(9,692)		(5,181)
Change in fair value of FVO loans and related derivatives	4,110		(25,001)		2,480		(37,658)
Other derivative income	1,530		2,242		5,683		950
Other	2,209		1,190		5,141		3,490
Total noninterest income (loss)	19,371		(11,683)		50,712		3,967
Noninterest expense
Salaries and employee benefits	40,239		39,042		116,918		112,259
Data processing and communication	7,054		5,817		19,825		17,713
Occupancy and equipment	5,105		5,251		15,829		15,941
Professional fees	4,644		7,382		12,293		16,409
Advertising	602		750		1,635		2,573
Net (gain) loss on repossessed property and other related expenses	(760)		2,475		(469)		8,508
Goodwill and intangible assets impairment	—		—		—		742,352
Other ¹	3,621		6,332		11,026		16,677
Total noninterest expense	60,505		67,049		177,057		932,432
Income (loss) before income taxes	77,028		5,878		195,696		(716,597)
Provision for (benefit from) income taxes	18,279		478		44,329		(24,653)
Net income (loss)	$	58,749	$	5,400	$	151,367	$	(691,944)
Basic earnings per common share
Weighted average common shares outstanding	55,207,008		55,082,621		55,175,567		55,788,751
Basic earnings per share	$	1.06	$	0.10	$	2.74	$	(12.40)
Diluted earnings per common share
Weighted average diluted common shares outstanding	55,524,979		55,145,619		55,409,573		55,788,751
Diluted earnings per share	$	1.06	$	0.10	$	2.74	$	(12.40)
Dividends per share
Dividends paid	$	551	$	8,252	$	1,652	$	41,906
Dividends per share	$	0.01	$	0.15	$	0.03	$	0.75
1 For the three and nine months ended June 30, 2021, this line includes a $0.2 million and $0.3 million reversal of provision, respectively, for unfunded commitments reserve. For the three and nine months ended June 30, 2020, provision for unfunded commitments reserve of $2.2 million and $2.9 million, respectively, was recorded in other noninterest expense in the consolidated income statement.

See accompanying notes.

7-

GREAT WESTERN BANCORP, INC.

Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in Thousands)

	Three Months Ended June 30,				Nine Months Ended June 30,
	2021		2020		2021		2020
Net income (loss)	$	58,749	$	5,400	$	151,367	$	(691,944)
Other comprehensive income (loss), net of tax
Securities available for sale:
Net unrealized holding gain (loss) arising during the period	11,161		11,838		(28,027)		42,019
Reclassification adjustment for net gain realized in net income	—		—		(247)		—
Income tax (expense) benefit	(2,751)		(2,919)		6,970		(10,359)
Other comprehensive income (loss), net of tax	8,410		8,919		(21,304)		31,660
Comprehensive income (loss)	$	67,159	$	14,319	$	130,063	$	(660,284)

See accompanying notes.

8-

GREAT WESTERN BANCORP, INC.

Consolidated Statements of Stockholders' Equity (Unaudited)

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

	Comprehensive Income		Common Stock Par Value		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total
Balance, April 1, 2020			$	550	$	1,190,381	$	(73,705)	$	36,238	$	1,153,464
Net income	$	5,400	—		—		5,400		—		5,400
Other comprehensive income, net of tax	8,919		—		—		—		8,919		8,919
Total comprehensive income	$	14,319
Stock-based compensation, net of tax			—		1,113		—		—		1,113
Cash dividends:
Common stock, $0.15 per share			—		(8,252)		—		—		(8,252)
Balance, June 30, 2020			$	550	$	1,183,242	$	(68,305)	$	45,157	$	1,160,644
Balance, April 1, 2021			$	551	$	1,184,647	$	(97,470)	$	6,191	$	1,093,919
Net income	$	58,749	—		—		58,749		—		58,749
Other comprehensive income, net of tax	8,410		—		—		—		8,410		8,410
Total comprehensive income	$	67,159
Stock-based compensation, net of tax			—		542		—		—		542
Cash dividends:
Common stock, $0.01 per share			—		(551)		—		—		(551)
Balance, June 30, 2021			$	551	$	1,184,638	$	(38,721)	$	14,601	$	1,161,069

	Comprehensive (Loss) Income		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 (loss)	$	(691,944)	—		—		(691,944)		—		(691,944)
Other comprehensive income, net of tax	31,660		—		—		—		31,660		31,660
Total comprehensive (loss)	$	(660,284)
Cumulative effect adjustment related to ASU adoption ¹			—		—		(182)		—		(182)
Stock-based compensation, net of tax			1		2,749		—		—		2,750
Repurchase common stock			(14)		(39,969)		—		—		(39,983)
Cash dividends:
Common stock, $0.75 per share			—		(8,252)		(33,654)		—		(41,906)
Balance, June 30, 2020			$	550	$	1,183,242	$	(68,305)	$	45,157	$	1,160,644
Balance, October 1, 2020			$	550	$	1,183,647	$	(57,169)	$	35,905	$	1,162,933
Net income	$	151,367	—		—		151,367		—		151,367
Other comprehensive (loss), net of tax	(21,304)		—		—		—		(21,304)		(21,304)
Total comprehensive income	$	130,063
Cumulative effect adjustment related to ASU adoption ²			—		—		(132,919)		—		(132,919)
Stock-based compensation, net of tax			1		2,643		—		—		2,644
Cash dividends:
Common stock, $0.03 per share			—		(1,652)		—		—		(1,652)
Balance, June 30, 2021			$	551	$	1,184,638	$	(38,721)	$	14,601	$	1,161,069
¹ Cumulative effect adjustment related to the Company's adoption of ASU 2016-02, Leases (Topic 842), 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.

9-

GREAT WESTERN BANCORP, INC.

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in Thousands)

	Nine Months Ended June 30,
	2021		2020
Operating activities
Net income (loss)	$	151,367	$	(691,944)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, amortization and deferred fee accretion, net	(13,285)		13,152
Amortization of FDIC indemnification asset	—		1,012
Net (gain) loss on sale of other assets	(1,037)		6,649
Net gain on sale of loans	(10,469)		(5,840)
(Reversal of) provision for credit losses ¹	(13,800)		101,539
Goodwill and intangible assets impairment	—		742,352
(Reversal of) provision for loan servicing rights loss	(1)		6
Stock-based compensation	2,644		2,750
Originations of residential real estate loans held for sale	(320,216)		(231,420)
Proceeds from sales of residential real estate loans held for sale	341,680		231,771
Proceeds from sale of other assets	348		—
Net deferred income taxes	12,570		(56,659)
Changes in:
Accrued interest receivable	18,413		744
Other assets	9,586		(71,570)
Accrued interest payable and other liabilities	(159)		20,128
Net cash provided by operating activities	177,641		62,670
Investing activities
Net change in securities purchased under agreements to resell	(104,523)		—
Purchase of debt securities available for sale	(1,007,175)		(540,697)
Proceeds from maturities of debt securities available for sale	560,572		387,950
Purchase of debt securities held to maturity	(201,281)		—
Proceeds from maturities of debt securities held to maturity	2,574		—
Net decrease (increase) in loans	1,568,833		(633,971)
Payment of covered losses from FDIC indemnification claims	—		(46)
Purchase of premises and equipment	(3,907)		(4,988)
Proceeds from sale of premises and equipment	572		—
Proceeds from sale of repossessed property	13,467		18,798
Purchase of bank owned life insurance policies	(150,000)		—
Purchase of FHLB stock	(10)		(113,437)
Proceeds from redemption of FHLB stock	280		112,992
Net cash paid in business acquisition	—		(4,711)
Net cash provided by (used in) investing activities	679,402		(778,110)
Financing activities
Net increase in deposits	529,020		850,367
Net increase in securities sold under agreements to repurchase and other short-term borrowings	14,661		1,370
Proceeds from FHLB advances and other long-term borrowings	—		680,000
Repayments on FHLB advances and other long-term borrowings	(75,000)		(665,000)
Common stock repurchased	—		(39,983)
Taxes paid related to net share settlement of equity awards	(614)		(1,297)
Dividends paid	(1,652)		(41,906)
Net cash provided by financing activities	466,415		783,551
Net increase in cash and cash equivalents	1,323,458		68,111
Cash and cash equivalents, beginning of period	432,887		243,474
Cash and cash equivalents, end of period	$	1,756,345	$	311,585
Supplemental disclosure of cash flow information
Cash payments for interest	$	22,292	$	71,423
Cash (receipts from) payments for income taxes	$	29,799	$	21,089
Supplemental disclosure of noncash investing and financing activities
Loans transferred to repossessed properties	$	(4,029)	$	(7,762)
1 For the nine months ended June 30, 2021, this line includes a $0.3 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." 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 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.

Basis of Presentation

The accompanying unaudited consolidated interim financial statements have been prepared in accordance with 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, 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 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 2016-13, as amended, as of October 1, 2020, the Company updated its accounting policies related to securities, loans and allowance for credit losses. See "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.

In the second quarter of fiscal year 2021, the Company purchased securities under agreements to resell which are collateralized by FHA/VA loans guaranteed by the U.S. government. See "Securities Purchased Under Agreements to Resell" within this section for additional policy information.

In the third quarter of fiscal year 2021, the Company purchased held to maturity debt securities. See "Securities" within this section for additional policy 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, 2020 that could have a material effect on the Company's consolidated financial statements.

Securities Purchased Under Agreements to Resell

Securities purchased under agreements to resell are accounted for as collateralized financing transactions with a receivable recorded on the consolidated balance sheet at the amounts at which the securities were acquired, plus accrued interest. Collateral requirements are continually monitored and additional collateral is received as required.

Securities received from counterparties under agreements to resell are not recognized on the consolidated balance sheet unless the counterparty defaults. The securities received under reverse repurchase transactions are residential mortgage-backed securities. Reverse repurchase transactions expose the Company to counterparty risk. The Company manages this risk by performing assessments and establishing concentration limits on each counterparty. Additionally, these transactions include collateral arrangements that require additional collateral pledged if the counterparty's collateral value drops below specified collateral levels.

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GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

Securities

Investment securities are accounted for according to their purpose and holding period. Debt securities held for resale are classified as trading. Trading securities are stated at fair value. Realized and unrealized gains and losses from sales and fair value adjustments of trading securities are included in other noninterest income on the consolidated statements of income. There were no trading securities held at June 30, 2021 and September 30, 2020.

Debt securities for which the Company has the ability and positive intent to hold until maturity are classified as held to maturity. Held to maturity securities are stated at amortized cost, which represents actual cost adjusted for premium amortization and discount accretion.

All other securities are classified as available for sale as they may be sold prior to maturity in response to changes in the Company’s interest rate risk profile, funding needs, demand for collateralized deposits by public entities or other reasons. Available for sale securities are stated at fair value. For available for sale debt securities in 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 Company will be required to sell the security before recovery of its amortized cost basis. If either criteria is met, the entire amount of unrealized loss is recognized in the consolidated income statement with a corresponding adjustment to the security's amortized cost basis.

If neither criteria is met, the 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 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 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 taxes, and is included in stockholders’ equity as a component of accumulated other comprehensive income (loss).

Equity securities are carried at fair value, with changes in fair value reported in the consolidated statements of income. Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment.

Realized gains and losses are recorded in noninterest income on the consolidated statements of income and are determined on a trade date basis using the specific identification method. Interest and dividends on investment securities are recognized in interest income on an accrual basis. Premiums and discounts are amortized or accreted into interest income using the interest method over the expected lives of the individual securities.

Transfer of debt securities from the available for sale category to the hold to maturity category are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer remains in accumulated other comprehensive income and in the carrying value of the hold to maturity investment security. Premiums or discounts on investment securities are amortized or accreted as an adjustment of yield over the estimated life of the security. Unrealized holding gains or losses that remain in accumulated other comprehensive income are also amortized or accreted over the estimated life of the security as an adjustment of yield, offsetting the related amortization of the premium or accretion of the discount.

Loans

Originated Loans

Loans that management has the intent and ability to hold for the foreseeable future, or until maturity or pay-off, are reported at amortized cost (i.e., outstanding principal balance, adjusted for charge-offs and any unamortized deferred fees or costs). Other fees not associated with originating a loan are recognized as 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 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.

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GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

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 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 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 cost and 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 mortgage banking income, net. 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 mortgage banking income, net on the consolidated statements of income.

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 (typically between 5 and 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 FVO loans and 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 related derivatives on the consolidated statements of income.

Credit 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.

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GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

The Company assigns all non-consumer loans a credit quality risk rating. 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 at June 30, 2021. For information on the 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 material 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 higher level of approval and are reviewed quarterly. Advances are allowed to support the continued operating needs of the borrower for their operation and may include, but not limited to, working capital needs to support inventory, accounts receivable, payroll, tax payments, utilities and 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.

Troubled Debt Restructurings

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 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 modification 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 the CARES Act to January 1, 2022. Accordingly, in appropriate circumstances 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.

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GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

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 loan 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 calculated 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 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 pool 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.

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.

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GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

The following table describes the Company’s eight 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.

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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 July 29, 2021, the Board of Directors of the Company declared a dividend of $0.05 per common share payable on August 27, 2021 to stockholders of record as of close of business on August 13, 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 eight loan portfolio pools for which a model has been established to estimate credit losses. The historical data sets of these pools 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 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 in the first fiscal quarter 2021.

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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	$	—	$	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)		—		—		—		—
Agriculture	1,724,350		—		(1,654)		1,722,696		55		1,722,751
Commercial non-real estate	2,181,656		—		(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	—		100,553		1,642		102,195		(20)		102,175
Consumer	63,206		(63,206)		—		—		—		—
Other	37,347		(37,347)		—		—		—		—
Ending balance	10,111,602		—		(35,460)		10,076,142		1,498		10,077,640
Less: Unamortized discount           on acquired loans	(8,215)		—		8,215		—		—		—
Unearned net deferred fees and           costs and net loans in process	(27,245)		—		27,245		—		—		—
Total	$	10,076,142	$	—	$	—	$	10,076,142	$	1,498	$	10,077,640
Allowance:
Construction and development	n/a ⁴		$	(7,012)	$	—	$	(7,012)	$	(11,963)	$	(18,975)
Owner-occupied CRE	n/a ⁴		(20,530)		—		(20,530)		(4,298)		(24,828)
Non-owner-occupied CRE	n/a ⁴		(50,965)		—		(50,965)		(98,986)		(149,951)
Multifamily residential real estate	n/a ⁴		(6,726)		—		(6,726)		(2,681)		(9,407)
Total commercial real estate	(84,496)		84,496		—		—		—		—
Agriculture	(27,018)		—		—		(27,018)		(24,360)		(51,378)
Commercial non-real estate	(27,599)		—		—		(27,599)		(32,938)		(60,537)
Residential real estate	(8,202)		737		—		(7,465)		(2,595)		(10,060)
Consumer and other	(2,572)		—		—		(2,572)		532		(2,040)
Total	$	(149,887)	$	—	$	—	$	(149,887)	$	(177,289)	$	(327,176)
1 Reclassifications made from reported loan and related allowance segments to align with the eight loan portfolio pools 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 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."

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GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

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 eliminated, added and modified certain disclosure requirements for fair value measurements. Among the changes, entities are no longer required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but are required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The Company adopted the standard on October 1, 2020. The adoption of this guidance did not have a material impact to the consolidated financial statements.

Accounting Standards Not Yet Adopted in Fiscal Year 2021

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 and does not plan early adoption.

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 and does not plan early adoption.

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

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The amendments in this update are elective and apply to all entities that have derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The amendments also optionally apply to all entities that designate receive-variable rate, pay-variable-rate cross-currency interest rate swaps as hedging instruments in net investment hedges that are modified as a result of reference rate reform. ASU 2021-01 was effective upon issuance and generally can be applied through December 31, 2022. ASU 2021-01 has not had, and is not expected to have, a material impact on the Company’s consolidated financial statements.

In July 2021, the FASB issues ASU 2021-05, Leases (Topic 842) Lessors - Certain Leases with Variable Lease Payments, which updates guidance in Topic 842, to restore long-standing accounting practice for certain sales-type leases with variable payments. ASU 2021-05 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. The Company does not expect adoption of the new guidance to have a significant impact on our financial statements.

19-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

3. Securities

The following table presents amortized cost and approximate fair value of investments in securities.

	June 30, 2021								September 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(dollars in thousands)
Securities available for sale
U.S. Treasury securities	$	99,047	$	201	$	(98)	$	99,150	$	49,924	$	228	$	—	$	50,152
U.S. Agency securities	24,976		—		(865)		24,111		24,974		86		—		25,060
Mortgage-backed securities:
Government National Mortgage Association	312,811		6,710		(274)		319,247		485,689		11,481		(43)		497,127
Federal Home Loan Mortgage Corporation	977,156		11,786		(7,142)		981,800		578,650		18,919		(9)		597,560
Federal National Mortgage Association	439,752		4,748		(3,864)		440,636		287,842		7,788		(16)		295,614
Small Business Assistance Program	232,089		7,167		(343)		238,913		244,653		7,884		(58)		252,479
States and political subdivision securities	47,287		1,091		(1)		48,377		54,224		1,356		—		55,580
Corporate debt securities	28,000		244		—		28,244		—		—		—		—
Other	1,006		30		—		1,036		1,006		48		—		1,054
Total	$	2,162,124	$	31,977	$	(12,587)	$	2,181,514	$	1,726,962	$	47,790	$	(126)	$	1,774,626
Securities held to maturity
U.S. Treasury securities	$	13,666	$	41	$	—	$	13,707	$	—	$	—	$	—	$	—
Mortgage-backed securities:
Government National Mortgage Association	45,964		—		(49)		45,915		—		—		—		—
Federal Home Loan Mortgage Corporation	53,616		43		(34)		53,625		—		—		—		—
Federal National Mortgage Association	46,408		3		(186)		46,225		—		—		—		—
Small Business Assistance Program	39,341		—		(238)		39,103		—		—		—		—
States and political subdivision securities	3,450		—		—		3,450		—		—		—		—
Total	$	202,445	$	87	$	(507)	$	202,025	$	—	$	—	$	—	$	—

The Company elected to exclude accrued interest receivable from the amortized cost basis of debt securities disclosed throughout this footnote. Accrued interest receivable on debt securities totaled $5.2 million and $4.5 million as of June 30, 2021 and September 30, 2020, respectively. Accrued interest receivable for debt securities is included in accrued interest receivable on the consolidated balance sheets.

As June 30, 2021 and September 30, 2020 the Company had no transfers from held to maturity debt securities.

20-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

The amortized cost and approximate fair value of debt securities as of June 30, 2021 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.

	June 30, 2021				September 30, 2020
	Amortized  Cost		Estimated Fair Value		Amortized  Cost		Estimated Fair Value
	(dollars in thousands)
Securities available for sale
Due in one year or less	$	18,198	$	18,289	$	67,131	$	67,456
Due after one year through five years	123,092		122,998		51,779		52,694
Due after five years through ten years	58,020		58,595		10,212		10,642
Due after ten years	—		—		—		—
	199,310		199,882		129,122		130,792
Mortgage-backed securities	1,961,808		1,980,596		1,596,834		1,642,780
Securities without contractual maturities	1,006		1,036		1,006		1,054
Total	$	2,162,124	$	2,181,514	$	1,726,962	$	1,774,626
Securities held to maturity
Due in one year or less	$	150	$	150	$	—	$	—
Due after one year through five years	500		500		—		—
Due after five years through ten years	16,466		16,507		—		—
Due after ten years	—		—		—		—
	17,116		17,157		—		—
Mortgage-backed securities	185,329		184,868		—		—
Securities without contractual maturities	—		—		—		—
Total	$	202,445	$	202,025	$	—	$	—

There were no sales of securities available for sale for both the three and nine months ended June 30, 2021 and 2020 and as such there were no proceeds from the sales of securities available for sale for same periods. No gross gains (pre-tax) were realized on the sales for each of the three and nine months ended June 30, 2021 and 2020, using the specific identification method. No gross losses (pre-tax) were realized on the sales for each of the three and nine months ended June 30, 2021 and 2020, using the specific identification method.

There were no sales of securities held to maturity for the three and nine months ended June 30, 2021 and as such there were no proceeds from the sales of securities held to maturity for same periods. No gross gains (pre-tax) were realized on the sales for the three and nine months ended June 30, 2021, using the specific identification method. No gross losses (pre-tax) were realized on the sales for each of the three and nine months ended June 30, 2021, using the specific identification method.

As detailed in the following tables, certain investments in available for sale debt securities, which are approximately 42% and 6% of the Company’s investment portfolio at estimated fair value at June 30, 2021 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 June 30, 2021, and therefore, an allowance for credit losses was not recorded.

Substantially all of the Company's held to maturity debt securities are issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as "risk free" and have a long history of zero credit loss. Therefore, the Company did not record an allowance for credit losses for those securities at June 30, 2021. In addition, the Company does not intend to sell these securities, and it is not more likely than not the Company will be required to sell the investment securities before recover of their amortized cost basis, which may be maturity.

Prior to the adoption of ASU 2016-13, as amended, the Company recognized no other-than-temporary impairment on available for sale or held to maturity debt securities for the three and nine months ended June 30, 2020.

Securities with an estimated fair value of approximately $1.30 billion and $1.10 billion at June 30, 2021 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.

21-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

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

	As of June 30, 2021
	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)
Securities available for sale
U.S. Treasury securities	$	49,264	$	(98)	$	—	$	—	$	49,264	$	(98)
U.S. Agency securities	24,111		(865)		—		—		24,111		(865)
Mortgage-backed securities	819,752		(11,477)		12,402		(146)		832,154		(11,623)
States and political subdivision securities	999		(1)		—		—		999		(1)
Total	$	894,126	$	(12,441)	$	12,402	$	(146)	$	906,528	$	(12,587)
Securities held to maturity
U.S. Treasury securities	$	—	$	—	$	—	$	—	$	—	$	—
Mortgage-backed securities	136,102		(507)		—		—		136,102		(507)
States and political subdivision securities	—		—		—		—		—		—
Total	$	136,102	$	(507)	$	—	$	—	$	136,102	$	(507)

	As of September 30, 2020
	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)
Securities available for sale
U.S. Treasury securities	$	—	$	—	$	—	$	—	$	—	$	—
U.S. Agency securities	—		—		—		—		—		—
Mortgage-backed securities	71,547		(103)		27,897		(23)		99,444		(126)
States and political subdivision securities	—		—		—		—		—		—
Total	$	71,547	$	(103)	$	27,897	$	(23)	$	99,444	$	(126)
Securities held to maturity
U.S. Treasury securities	$	—	$	—	$	—	$	—	$	—	$	—
Mortgage-backed securities	—		—		—		—		—		—
States and political subdivision securities	—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	—

As of June 30, 2021 and September 30, 2020, the Company had 90 and 18 available for sale securities, respectively, in an unrealized loss position. As of June 30, 2021 and September 30, 2020, the Company had 11 and no held to maturity securities, respectively, in an unrealized loss position.

22-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

4. Loans and Allowance for Credit Losses

The following table presents the composition of loans at amortized cost as of June 30, 2021 and September 30, 2020.

	June 30, 2021								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	$	433,293	$	—	$	—	$	433,293	$	509,644	$	—	$	—	$	509,644
Owner-occupied CRE	1,318,196		93,756		50,189		1,174,251		1,417,394		109,097		48,468		1,259,829
Non-owner-occupied CRE	2,244,335		230,174		26,802		1,987,359		2,894,380		283,266		27,402		2,583,712
Multifamily residential real estate	592,544		1,474		—		591,070		533,983		3,847		—		530,136
Total commercial real estate	4,588,368		325,404		76,991		4,185,973		5,355,401		396,210		75,870		4,883,321
Agriculture	1,438,499		106,060		34,608		1,297,831		1,722,696		129,041		42,353		1,551,302
Commercial non-real estate	1,710,938		113,685		380,812		1,216,441		2,165,038		129,934		744,371		1,290,733
Residential real estate ³	631,688		—		279		631,409		730,812		—		290		730,522
Consumer and other ⁴	108,290		—		—		108,290		102,195		—		—		102,195
Total	$	8,477,783	$	545,149	$	492,690	$	7,439,944	$	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 pools 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 $1.4 million and $12.4 million at June 30, 2021 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.

The following table presents the Company’s past due and nonaccrual loans at amortized cost as of June 30, 2021. This table excludes loans measured at fair value under the fair value option of $545.1 million at June 30, 2021.

As of June 30, 2021	Current or Less Than 30 Days Past Due		30-89 Days Past Due		90 Days Past Due and Still Accruing		Nonaccrual		Total
	(dollars in thousands)
Construction and development	$	433,271	$	—	$	—	$	22	$	433,293
Owner-occupied CRE	1,210,373		142		—		13,925		1,224,440
Non-owner-occupied CRE	2,007,189		—		—		6,972		2,014,161
Multifamily residential real estate	584,187		—		—		6,883		591,070
Total commercial real estate	4,235,020		142		—		27,802		4,262,964
Agriculture	1,195,763		8,005		—		128,671		1,332,439
Commercial non-real estate	1,561,870		1,231		—		34,152		1,597,253
Residential real estate	624,738		500		—		6,450		631,688
Consumer and other	108,134		115		10		31		108,290
Total	$	7,725,525	$	9,993	$	10	$	197,106	$	7,932,634

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.

As of September 30, 2020	Current or Less Than 30 Days Past Due		30-89 Days Past Due		90 Days Past Due and Still Accruing		Nonaccrual		Total
	(dollars in thousands)
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
Total	$	9,051,121	$	74,930	$	—	$	322,146	$	9,448,197

23-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

The following table provides additional information on nonaccrual loans for the three and nine months ended June 30, 2021. The Company did not record any interest income on nonaccrual loans during the three and nine months ended June 30, 2021.

	September 30, 2020		June 30, 2021				Three Months Ended June 30, 2021		Nine Months Ended June 30, 2021
	Nonaccrual		Nonaccrual		Nonaccrual Loans with No Related ACL		Accrued Interest Written Off on Nonaccrual Loans		Accrued Interest Written Off on Nonaccrual Loans
	(dollars in thousands)
Construction and development	n/a ¹		$	22	$	—	$	—	$	115
Owner-occupied CRE	n/a ¹		13,925		4,232		17		31
Non-owner-occupied CRE	n/a ¹		6,972		1,207		19		1,922
Multifamily residential real estate	n/a ¹		6,883		6,883		40		40
Total commercial real estate	$	73,146	27,802		12,322		76		2,108
Agriculture	217,642		128,671		40,333		64		775
Commercial non-real estate	26,843		34,152		8,328		26		25
Residential real estate	4,441		6,450		87		7		75
Consumer and other	74		31		—		—		1
Total	$	322,146	$	197,106	$	61,070	$	173	$	2,984
1 Balance for this segment is included in total commercial real estate for September 30, 2020.

24-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

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 $545.1 million at June 30, 2021.

	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	$	167,374	$	116,332	$	57,660	$	11,743	$	712	$	612	$	53,861	$	—	$	408,294
Special Mention	2,560		—		196		—		—		—		—		—		2,756
Substandard	20,824		—		1,419		—		—		—		—		—		22,243
Doubtful	—		—		—		—		—		—		—		—		—
Total construction and development	$	190,758	$	116,332	$	59,275	$	11,743	$	712	$	612	$	53,861	$	—	$	433,293
Owner-occupied CRE
Pass	$	236,108	$	332,095	$	205,302	$	103,336	$	117,637	$	122,449	$	43,401	$	—	$	1,160,328
Special Mention	7,716		1,606		2,810		5,798		5,525		7,723		383		—		31,561
Substandard	6,067		3,968		2,277		524		11,906		4,544		75		—		29,361
Doubtful	—		—		3,190		—		—		—		—		—		3,190
Total owner-occupied CRE	$	249,891	$	337,669	$	213,579	$	109,658	$	135,068	$	134,716	$	43,859	$	—	$	1,224,440
Non-owner-occupied CRE
Pass	$	214,538	$	335,587	$	275,953	$	273,022	$	246,273	$	257,951	$	36,659	$	—	$	1,639,983
Special Mention	16,343		28,609		45,051		57,833		34,774		14,608		345		—		197,563
Substandard	66,008		6,273		31,616		32,466		7,623		8,052		24,193		—		176,231
Doubtful	384		—		—		—		—		—		—		—		384
Total non-owner-occupied CRE	$	297,273	$	370,469	$	352,620	$	363,321	$	288,670	$	280,611	$	61,197	$	—	$	2,014,161
Multifamily residential real estate
Pass	$	153,086	$	96,574	$	145,985	$	68,696	$	67,826	$	37,156	$	1,186	$	—	$	570,509
Special Mention	—		—		1,261		—		1,042		808		—		—		3,111
Substandard	252		499		—		9,393		—		423		—		—		10,567
Doubtful	—		6,883		—		—		—		—		—		—		6,883
Total multifamily residential real estate	$	153,338	$	103,956	$	147,246	$	78,089	$	68,868	$	38,387	$	1,186	$	—	$	591,070
Total commercial real estate
Pass	$	771,106	$	880,588	$	684,900	$	456,797	$	432,448	$	418,168	$	135,107	$	—	$	3,779,114
Special Mention	26,619		30,215		49,318		63,631		41,341		23,139		728		—		234,991
Substandard	93,151		10,740		35,312		42,383		19,529		13,019		24,268		—		238,402
Doubtful	384		6,883		3,190		—		—		—		—		—		10,457
Total commercial real estate	$	891,260	$	928,426	$	772,720	$	562,811	$	493,318	$	454,326	$	160,103	$	—	$	4,262,964
Agriculture
Pass	$	185,395	$	148,858	$	73,722	$	58,803	$	57,291	$	22,670	$	444,244	$	—	$	990,983
Special Mention	22,971		12,862		4,131		24,327		4,842		3,562		28,318		—		101,013
Substandard	25,786		8,929		14,828		36,941		36,381		4,312		87,780		—		214,957
Doubtful	1,704		—		888		21,391		1,007		—		496		—		25,486
Total agriculture	$	235,856	$	170,649	$	93,569	$	141,462	$	99,521	$	30,544	$	560,838	$	—	$	1,332,439
Commercial non-real estate
Pass	$	412,511	$	263,816	$	172,804	$	47,621	$	40,763	$	33,105	$	527,533	$	—	$	1,498,153
Special Mention	1,967		2,283		2,821		151		2,520		763		18,271		—		28,776
Substandard	13,229		4,563		10,080		17,974		118		1,098		17,310		—		64,372
Doubtful	—		—		47		62		—		3,969		1,874		—		5,952
Total commercial non-real estate	$	427,707	$	270,662	$	185,752	$	65,808	$	43,401	$	38,935	$	564,988	$	—	$	1,597,253

25-

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)
Residential real estate ¹
Pass	$	106,126	$	180,443	$	61,267	$	40,503	$	24,232	$	96,829	$	110,650	$	274	$	620,324
Special Mention	731		219		267		297		128		294		148		—		2,084
Substandard	37		952		1,591		739		499		4,540		922		—		9,280
Doubtful	—		—		—		—		—		—		—		—		—
Total residential real estate	$	106,894	$	181,614	$	63,125	$	41,539	$	24,859	$	101,663	$	111,720	$	274	$	631,688
Consumer and other ¹
Pass	$	20,711	$	11,906	$	16,675	$	1,910	$	734	$	797	$	55,492	$	—	$	108,225
Special Mention	—		—		—		—		—		—		34		—		34
Substandard	—		3		8		—		—		—		20		—		31
Doubtful	—		—		—		—		—		—		—		—		—
Total consumer and other	$	20,711	$	11,909	$	16,683	$	1,910	$	734	$	797	$	55,546	$	—	$	108,290
Total loans
Pass	$	1,495,849	$	1,485,611	$	1,009,368	$	605,634	$	555,468	$	571,569	$	1,273,026	$	274	$	6,996,799
Special Mention	52,288		45,579		56,537		88,406		48,831		27,758		47,499		—		366,898
Substandard	132,203		25,187		61,819		98,037		56,527		22,969		130,300		—		527,042
Doubtful	2,088		6,883		4,125		21,453		1,007		3,969		2,370		—		41,895
Total loans	$	1,682,428	$	1,563,260	$	1,131,849	$	813,530	$	661,833	$	626,265	$	1,453,195	$	274	$	7,932,634
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	—		—		—		—		—		—
Total	$	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.

26-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

The next three tables include additional disclosures previously required by ASC Topic 310 related to the Company's September 30, 2020 balances and activity for the three and nine ended June 30, 2020.

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	—		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 investment on impaired loans and interest income recognized on impaired loans for the three and nine months ended June 30, 2020.

	Three Months Ended June 30, 2020				Nine Months Ended June 30, 2020
	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	$	152,871	$	1,684	$	113,146	$	5,350
Agriculture	348,006		3,421		354,202		16,722
Commercial non-real estate	97,310		678		84,849		5,079
Residential real estate	10,901		120		9,957		513
Consumer	117		2		148		6
Total	$	609,205	$	5,905	$	562,302	$	27,670

The Company did not acquire any loans during the three and nine months ended June 30, 2021. Prior to October 1, 2020, the Company accounted for acquired impaired loans in accordance with ASC 310-30. The following table is a summary of changes in the accretable difference for all loans accounted for under ASC 310-30 during the three and nine months ended June 30, 2020.

	Three Months Ended June 30, 2020		Nine Months Ended June 30, 2020
	(dollars in thousands)
Balance, beginning of period	$	19,340	$	26,047
Accretion	(1,854)		(5,547)
Reclassification (to) nonaccretable difference	(776)		(3,790)
Balance, end of period	$	16,710	$	16,710

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 $11.6 million and $11.0 million at June 30, 2021 and September 30, 2020, respectively. There were $0.5 million and nominal commitments to lend additional funds to borrowers whose loans were modified in a TDR at both June 30, 2021 and September 30, 2020.

27-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

The following table presents the amortized cost of the Company’s TDR balances as of June 30, 2021 and recorded value of TDR balances as of September 30, 2020.

	June 30, 2021				September 30, 2020
	Accruing		Nonaccrual		Accruing		Nonaccrual
	(dollars in thousands)
Construction and development	$	—	$	22	n/a ¹		n/a ¹
Owner-occupied CRE	3,346		4,166		n/a ¹		n/a ¹
Non-owner-occupied CRE	11,756		10		n/a ¹		n/a ¹
Multifamily residential real estate	—		—		n/a ¹		n/a ¹
Total commercial real estate	15,102		4,198		$	23,215	$	11,913
Agriculture	20,908		9,275		2,976		45,971
Commercial non real estate	4,626		22,769		8,734		4,803
Residential real estate	236		52		277		74
Consumer and other	—		18		3		31
Total	$	40,872	$	36,312	$	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 nine months ended June 30, 2021 and 2020.

	Three Months Ended June 30,										Nine Months Ended June 30,
	2021					2020					2021					2020
		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)
Construction and development	—	$	—	$	—	n/a ¹	n/a ¹		n/a ¹		—	$	—	$	—	n/a ¹	n/a ¹		n/a ¹
Owner-occupied CRE	—	—		—		n/a ¹	n/a ¹		n/a ¹		1	638		638		n/a ¹	n/a ¹		n/a ¹
Non-owner-occupied CRE	—	—		—		n/a ¹	n/a ¹		n/a ¹		1	10,561		10,561		n/a ¹	n/a ¹		n/a ¹
Multifamily residential real estate	—	—		—		n/a ¹	n/a ¹		n/a ¹		—	—		—		n/a ¹	n/a ¹		n/a ¹
Total commercial real estate	—	—		—		1	12,001		12,001		2	11,199		11,199		2	14,880		14,880
Agriculture	—	—		—		—	—		—		1	654		654		2	993		993
Commercial non-real estate	—	—		—		—	—		—		1	212		212		4	5,096		5,096
Residential real estate	—	—		—		—	—		—		—	—		—		1	50		50
Consumer and other	—	—		—		—	—		—		—	—		—		—	—		—
Total accruing	—	$	—	$	—	1	$	12,001	$	12,001	4	$	12,065	$	12,065	9	$	21,019	$	21,019
Change in recorded investment due to principal paydown at time of modification	—	$	—	$	—	—	$	—	$	—	—	$	—	$	—	—	$	—	$	—
Change in recorded investment due to chargeoffs at time of modification	—	—		—		—	—		—		—	—		—		—	—		—
1 Balance for this segment is included in total commercial real estate for the three and nine months ended June 30, 2020.

28-

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 nine months ended June 30, 2021 and 2020.

	Three Months Ended June 30,										Nine Months Ended June 30,
	2021					2020					2021					2020
		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)
Construction and development	—	$	—	$	—	n/a ¹	n/a ¹		n/a ¹		—	$	—	$	—	n/a ¹	n/a ¹		n/a ¹
Owner-occupied CRE	2	1,446		1,446		n/a ¹	n/a ¹		n/a ¹		2	1,446		1,446		n/a ¹	n/a ¹		n/a ¹
Non-owner-occupied CRE	—	—		—		n/a ¹	n/a ¹		n/a ¹		—	—		—		n/a ¹	n/a ¹		n/a ¹
Multifamily residential real estate	—	—		—		n/a ¹	n/a ¹		n/a ¹		—	—		—		n/a ¹	n/a ¹		n/a ¹
Total commercial real estate	2	1,446		1,446		—	—		—		2	1,446		1,446		1	2,216		2,216
Agriculture	6	1,758		1,758		1	19,342		19,342		9	4,305		4,305		11	20,797		20,797
Commercial non-real estate	3	15,238		15,238		3	922		922		4	15,982		15,982		5	1,752		1,752
Residential real estate	—	—		—		—	—		—		—	—		—		—	—		—
Consumer and other	—	—		—		—	—		—		—	—		—		—	—		—
Total nonaccruing	11	$	18,442	$	18,442	4	$	20,264	$	20,264	15	$	21,733	$	21,733	17	$	24,765	$	24,765
Change in recorded investment due to principal paydown at time of modification	—	$	—	$	—	—	$	—	$	—	—	$	—	$	—	—	$	—	$	—
Change in recorded investment due to chargeoffs at time of modification	—	—		—		—	—		—		—	—		—		—	—		—
1 Balance for this segment is included in total commercial real estate for the three and nine months ended June 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 nine months ended June 30, 2021 and 2020, respectively.

	Three Months Ended June 30,						Nine Months Ended June 30,
	2021			2020			2021			2020
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
	(dollars in thousands)
Construction and development	—	$	—	n/a ¹	n/a ¹		—	$	—	n/a ¹	n/a ¹
Owner-occupied CRE	—	—		n/a ¹	n/a ¹		—	—		n/a ¹	n/a ¹
Non-owner-occupied CRE	—	—		n/a ¹	n/a ¹		—	—		n/a ¹	n/a ¹
Multifamily residential real estate	—	—		n/a ¹	n/a ¹		—	—		n/a ¹	n/a ¹
Total commercial real estate	—	—		1	$	1,720	—	—		1	$	1,720
Agriculture	—	—		5	166		—	—		10	1,261
Commercial non-real estate	—	—		4	1,308		—	—		4	1,308
Residential real estate	—	—		—	—		—	—		—	—
Consumer and other	—	—		—	—		—	—		—	—
Total	—	$	—	10	$	3,194	—	$	—	15	$	4,289
1 Balance for this segment is included in total commercial real estate for the three and nine months ended June 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 no loans removed from TDR status during the three and nine months ended June 30, 2021 and $0.0 million and $0.3 million loans removed from TDR status during the three and nine months ended June 30, 2020, respectively, as they were restructured at market terms and are performing.

29-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

Allowance for Credit Losses ("ACL")

As previously mentioned in Note 2. New Accounting Standards, the 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 as a cumulative-effect adjustment on October 1, 2020.

The following tables presents ACL activity by loan portfolio segment for the three and nine months ended June 30, 2021.

Three Months Ended June 30, 2021	Beginning balance, April 1, 2021		Charge-offs		Recoveries		Provision for (reversal of) credit losses on loans		Ending balance, June 30, 2021
	(dollars in thousands)
Construction and development	$	15,088	$	—	$	38	$	1,054	$	16,180
Owner-occupied CRE	24,611		(483)		97		(3,793)		20,432
Non-owner-occupied CRE	135,933		(3,310)		1		(6,668)		125,956
Multifamily residential real estate	11,855		(377)		—		(5,317)		6,161
Total commercial real estate	187,487		(4,170)		136		(14,724)		168,729
Agriculture	45,783		(1,654)		176		(3,648)		40,657
Commercial non-real estate	52,074		(19)		301		(1,332)		51,024
Residential real estate	8,903		(1)		29		(893)		8,038
Consumer and other	1,706		(150)		141		153		1,850
Total	$	295,953	$	(5,994)	$	783	$	(20,444)	$	270,298

Nine Months Ended June 30, 2021	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, June 30, 2021
	(dollars in thousands)
Construction and development	$	7,012	$	11,963	$	18,975	$	(27)	$	377	$	(3,145)	$	16,180
Owner-occupied CRE	20,530		4,298		24,828		(483)		98		(4,011)		20,432
Non-owner-occupied CRE	50,965		98,986		149,951		(36,951)		455		12,501		125,956
Multifamily residential real estate	6,726		2,681		9,407		(377)		—		(2,869)		6,161
Total commercial real estate	85,233		117,928		203,161		(37,838)		930		2,476		168,729
Agriculture	27,018		24,360		51,378		(5,042)		2,673		(8,352)		40,657
Commercial non-real estate	27,599		32,938		60,537		(4,750)		860		(5,623)		51,024
Residential real estate	7,465		2,595		10,060		(300)		248		(1,970)		8,038
Consumer and other	2,572		(532)		2,040		(619)		428		1		1,850
Total	$	149,887	$	177,289	$	327,176	$	(48,549)	$	5,139	$	(13,468)	$	270,298
1 At September 30, 2020, the allowance balances were reclassified to align with the eight loan portfolio pools 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 unfunded commitments was $2.1 million and $2.4 million at June 30, 2021 and September 30, 2020, respectively, and is recorded in accrued expenses and other liabilities on the consolidated balance sheets. The reversal of provision for unfunded commitments was $0.2 million and $0.3 million for the three and nine months ended June 30, 2021, respectively, and is included in provision for credit losses in the consolidated statements of income. The provision for unfunded commitments was $2.2 million and $2.9 million for the three and nine months ended June 30, 2020, respectively, and is included in other noninterest expense in the consolidated statements of income.

30-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

The following tables present ACL activity by loan portfolio segment for the three and nine months ended June 30, 2020.

Three Months Ended June 30, 2020	Beginning balance, April 1, 2020		Charge-offs		Recoveries		Provision for credit losses on loans		Impairment of ASC 310-30 loans		Ending balance, June 30, 2020
	(dollars in thousands)
Commercial real estate	$	64,414	$	(1,335)	$	121	$	15,392	$	31	$	78,623
Agriculture	29,526		(4,250)		735		3,418		—		29,429
Commercial non-real estate	31,766		(3,210)		131		359		—		29,046
Residential real estate	8,356		(92)		48		229		—		8,541
Consumer and other	1,888		(1,720)		139		2,203		9		2,519
Total	$	135,950	$	(10,607)	$	1,174	$	21,601	$	40	$	148,158

Nine Months Ended June 30, 2020	Beginning balance, October 1, 2019		Charge-offs		Recoveries		Provision for credit losses on loans		(Improvement) impairment of ASC 310-30 loans		Ending balance, June 30, 2020
	(dollars in thousands)
Commercial real estate	$	16,827	$	(2,789)	$	355	$	64,249	$	(19)	$	78,623
Agriculture	30,819		(13,378)		2,143		10,110		(265)		29,429
Commercial non-real estate	17,567		(8,269)		303		19,445		—		29,046
Residential real estate	4,095		(379)		360		4,023		442		8,541
Consumer and other	1,466		(2,825)		324		3,524		30		2,519
Total	$	70,774	$	(27,640)	$	3,485	$	101,351	$	188	$	148,158

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.

The following table presents the notional amounts and gross fair values of all derivative assets and liabilities held by the Company as of June 30, 2021 and September 30, 2020.

	June 30, 2021						September 30, 2020
	Notional Amount		Gross Asset Fair Value		Gross Liability Fair Value		Notional Amount		Gross Asset Fair Value		Gross Liability Fair Value
	(dollars in thousands)
Derivatives not designated as hedging instruments:
Interest rate swaps - FVO loan portfolio
Financial institution counterparties	$	522,170	$	—	$	(37,253)	$	592,241	$	—	$	(62,587)
Interest rate swaps - Other
Financial institution counterparties	782,712		—		(1,046)		641,189		—		(1,672)
Customer counterparties	782,712		55,329		(3,733)		641,189		83,533		—
Interest rate caps
Financial institution counterparties	30,529		5		—		20,538		2		—
Customer counterparties	30,529		—		(5)		20,538		—		(2)
Risk participation agreements	107,552		—		(207)		80,681		—		(32)
Mortgage loan commitments	45,349		—		(6)		92,278		—		(96)
Mortgage loan forward sale contracts	44,577		6		—		94,084		96		—
Total	$	2,346,130	$	55,340	$	(42,250)	$	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.

31-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

The following tables provide information on the Company's netting adjustments as of June 30, 2021 and September 30, 2020.

	Gross Fair Value		Fair Value Offset Amount		Cash Collateral		Net Amount Presented on the Consolidated Balance Sheet
	(dollars in thousands)
As of June 30, 2021
Total Derivative Assets	$	55,340	$	(2,898)	$	13,474	$	65,916
Total Derivative Liabilities ¹	(42,250)		2,898		35,607		(3,745)
1 There was an additional $25.8 million of collateral held for initial margin with a Futures Clearing Merchant for clearing derivatives at June 30, 2021 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
	(dollars in thousands)
As of September 30, 2020
Total Derivative Assets	$	83,631	$	(5,263)	$	20,012	$	98,380
Total Derivative Liabilities ¹	(64,389)		5,263		59,028		(98)
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.

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.

The Company 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 nine months ended June 30, 2021 and 2020 was as follows.

		Amount of (Loss) Gain Recognized in Consolidated Statements of Income
		Three Months Ended June 30,				Nine Months Ended June 30,
	Location of (Loss) Gain Recognized in Consolidated Statements of Income	2021		2020		2021		2020
		(dollars in thousands)
Derivatives not designated as hedging instruments:
Interest rate swaps - FVO loan portfolio	Derivative interest expense	$	(3,117)	$	(3,040)	$	(9,692)	$	(5,181)
Interest rate swaps - FVO loan portfolio	Change in fair value of FVO loans and related derivatives	(3,685)		(2,883)		27,641		(36,148)
Interest rate swaps and other derivatives	Other derivative income	1,530		2,242		5,683		950
Mortgage loan commitments	Other derivative income	175		(627)		90		21
Mortgage loan forward sale contracts	Other derivative income	(175)		627		(90)		(21)

32-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

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 14 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 $16.6 million at June 30, 2021 and a net favorable difference of approximately $37.3 million at September 30, 2020. The total unpaid principal balance of these long-term loans was approximately $528.5 million and $617.9 million at June 30, 2021 and September 30, 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 June 30, 2021 and September 30, 2020, there were loans with a fair value of $13.0 million and $21.7 million, respectively, which were greater than 90 days past due or in nonaccrual status with an unpaid principal balance of $13.1 million and $26.2 million, respectively.

Changes in fair value for items for which the fair value option has been elected were an increase in fair value of $7.8 million and $25.2 million for the three and nine months ended June 30, 2021, respectively, and a decrease in fair value of $22.1 million and $1.5 million for the three and nine months ended June 30, 2020, respectively. These changes in fair value are reported net of the related derivative activity in change in fair value of FVO loans and related derivatives within the consolidated statements of income.

For long-term loans, $4.1 million and $2.7 million for the three and nine June 30, 2021, respectively, and $23.3 million and $35.9 million for the three and nine months ended June 30, 2020, 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.

7. Core Deposits and Other Intangibles

The following table presents a summary of intangible assets subject to amortization as of June 30, 2021 and September 30, 2020.

	Core Deposit Intangible		Customer Relationships Intangible		Other Intangible		Total
	(dollars in thousands)
As of June 30, 2021
Gross carrying amount	$	7,339	$	3,172	$	538	$	11,049
Accumulated amortization	(4,858)		(427)		(374)		(5,659)
Net intangible assets	$	2,481	$	2,745	$	164	$	5,390
As of September 30, 2020
Gross carrying amount	$	7,339	$	3,172	$	538	$	11,049
Accumulated amortization	(4,316)		(244)		(325)		(4,885)
Net intangible assets	$	3,023	$	2,928	$	213	$	6,164

Amortization expense of intangible assets were $0.2 million and $0.8 million for the three and nine months ended June 30, 2021, respectively, and $0.3 million and $1.2 million for the three and nine months ended June 30, 2020, respectively.

Fiscal year	Amount
	(dollars in thousands)
Remaining in 2021	$	240
2022	929
2023	831
2024	742
2025	683
2026 and thereafter	1,965
Total	$	5,390

33-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

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 June 30, 2021.

The following table summarizes the ROU asset and lease liability as of June 30, 2021 and September 30, 2020.

	June 30, 2021			September 30, 2020
	(dollars in thousands)
ROU asset	$	19,861		$	22,709
Total lease liability	21,019			24,114
Weighted average remaining lease term	5.85 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 $1.6 million and $5.0 million for the three and nine months ended June 30, 2021, respectively, and $1.8 million and $5.4 million for the three and nine months ended June 30, 2020, respectively, principally made up of contractual lease payments for operating leases.

As of June 30, 2021 and September 30, 2020, the Company had no operating leases that had not yet commenced.

The following table presents supplemental cash flow information related to leases for the three and nine months ended June 30, 2021 and 2020:

	Three Months Ended June 30,				Nine Months Ended June 30,
	2021		2020		2021		2020
	(dollars in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows paid for operating leases	$	1,413	$	1,400	$	4,341	$	4,226
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	$	(443)	$	2,415	$	2,444	$	8,046

34-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

The following table presents a maturity analysis of the Company's operating lease liability as of June 30, 2021.

Fiscal year	Amount
	(dollars in thousands)
Remaining in 2021	$	1,895
2022	4,973
2023	4,294
2024	3,545
2025	2,605
2026 and thereafter	5,446
Total undiscounted lease payments	22,758
Less: Amounts representing interest	(1,739)
Lease liability	$	21,019

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 $95.4 million and $82.6 million and fair value of approximately $96.2 million and $84.7 million at June 30, 2021 and September 30, 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 June 30, 2021 and September 30, 2020.

	June 30, 2021
	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Up to 30 Days		30-90 Days		Greater than 90 Days		Total
	(dollars in thousands)
Repurchase agreements
Mortgage-backed securities	$	80,167	$	—	$	—	$	—	$	80,167
Total repurchase agreements	$	80,167	$	—	$	—	$	—	$	80,167

	September 30, 2020
	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Up to 30 Days		30-90 Days		Greater than 90 Days		Total
	(dollars in thousands)
Repurchase agreements
Mortgage-backed securities	$	65,506	$	—	$	—	$	—	$	65,506
Total repurchase agreements	$	65,506	$	—	$	—	$	—	$	65,506

10. FHLB Advances and Other Borrowings

FHLB advances and other borrowings consist of the following at June 30, 2021 and September 30, 2020.

	June 30, 2021		September 30, 2020
	(dollars in thousands)
Short-term borrowings:
Fed funds purchased, matured in October 2020	$	—	$	75,000
Long-term borrowings:
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	$	120,000	$	195,000

35-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

As of June 30, 2021 and September 30, 2020, the Company had a borrowing capacity of $911.0 million and $947.7 million, respectively, with the FRB Discount Window. Principal balances of loans pledged to the FRB Discount Window to collateralize the borrowing totaled $1.08 billion at June 30, 2021 and $1.17 billion at September 30, 2020. The Company has secured this line for contingency funding.

As of June 30, 2021 and September 30, 2020, based on its collateral pledged, the additional borrowing capacity of the Company with the FHLB was $1.79 billion and $2.03 billion, respectively.

Principal balances of loans pledged to the FHLB to collateralize notes payable totaled $3.42 billion and $4.07 billion at June 30, 2021 and September 30, 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 $75.0 million at June 30, 2021 and September 30, 2020, respectively. The Company had additional letters of credit from the FHLB of $10.2 million and $14.6 million at June 30, 2021 and September 30, 2020, respectively, for other purposes.

As of June 30, 2021, FHLB advances and other borrowings are due or callable (whichever is earlier) in subsequent fiscal years as follows.

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

11. Subordinated Debentures and Subordinated Notes Payable

Junior Subordinated Deferrable Interest Debentures

The Company has seven trusts which were created or assumed as part of prior acquisitions that as of June 30, 2021 have 73,400 shares in the aggregate issued and outstanding, $1,000 par value, of Company Obligated Mandatorily Redeemable Preferred Securities ("Preferred Securities"). These seven 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 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 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 June 30, 2021 and September 30, 2020, Debentures, net of fair value adjustment, of $73.9 million and $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 June 30, 2021 and September 30, 2020, which are included in other assets on the consolidated balance sheets.

36-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

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, whose eligibility as Tier 2 capital was reduced by 20% beginning in the quarter ended September 30, 2020, and whose eligibility will continue to reduce 20% on the anniversary date thereof each of the next four years, 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 upon certain events of bankruptcy, insolvency or reorganization. Proceeds from the private placement of subordinated notes repaid outstanding subordinated debt.

Subordinated debentures and subordinated notes payable are summarized as follows.

	June 30, 2021				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	(1,987)				(2,088)
Total junior subordinated debentures payable, net of fair value adjustment	73,933				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	$	108,933			$	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.

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 $1.7 million and $4.9 million for the three and nine months ended June 30, 2021, respectively, and $1.8 million and $5.1 million to the 401(k) Plan for the three and nine months ended June 30, 2020, respectively.

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 and February 9, 2021, 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.

37-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

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.

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 $0.6 million and $3.0 million for the three and nine months ended June 30, 2021, respectively, and $1.1 million and $4.0 million for the three and nine months ended June 30, 2020, respectively. Related income tax benefits recognized were $0.1 million and $0.7 million for the three and nine months ended June 30, 2021, respectively, and $0.3 million and $1.0 million for the three and nine months ended June 30, 2020, respectively.

The following is a summary of the Plans’ restricted share and performance-based stock award activity as of June 30, 2021 and September 30, 2020. The number of performance shares granted in the following table are reflected at the amount of achievement of the pre-established targets.

	June 30, 2021			September 30, 2020
	Common Shares	Weighted-Average Grant Date Fair Value		Common Shares	Weighted-Average Grant Date Fair Value
Restricted Shares
Restricted shares, beginning of fiscal year	249,180	$	32.89	190,805	$	37.20
Granted	180,125	18.92		147,282	30.68
Vested	(94,247)	33.42		(84,316)	38.60
Forfeited	(4,388)	26.90		(4,591)	36.18
Canceled	—	—		—	—
Restricted shares, end of period	330,670	$	25.21	249,180	$	32.89
Vested, but not issuable at end of period	87,324	$	29.32	62,992	$	33.98
Performance Shares
Performance shares, beginning of fiscal year	175,740	$	33.56	173,332	$	38.50
Granted	106,000	18.87		62,278	40.15
Vested	(25,452)	41.07		(54,861)	39.43
Forfeited	(5,242)	28.85		(5,009)	37.90
Canceled	—	—		—	—
Performance shares, end of period	251,046	$	25.08	175,740	$	33.56
Vested, but not issuable at end of period	5,612	$	18.00	5,612	$	18.00

As of June 30, 2021, there was $5.5 million of unrecognized compensation cost related to non-vested restricted stock awards expected to be recognized over a period of 3.6 years. The fair value of the vested, but not issued stock awards was $3.0 million and $0.9 million at June 30, 2021 and September 30, 2020, respectively.

38-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

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.

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 in active markets are not available, the Company utilizes market observable data for similar assets and liabilities. The Company maximizes the use of observable inputs and limits the use of unobservable inputs to occasions when observable inputs are not available. The need to use unobservable inputs generally results from the lack of market liquidity of the actual financial instrument or of the underlying collateral. Although in some instances, third party price indications may be available, limited trading activity can challenge the observability of these quotations.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Following is a description of the valuation methodologies and inputs used for assets and liabilities measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.

Securities Available for Sale

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include U.S. Treasury securities. If quoted market prices are not available, then the securities are classified as Level 2 securities and fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. 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 June 30, 2021 and September 30, 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, and 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.

39-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

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).

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 June 30, 2021 and September 30, 2020.

	Fair Value		Level 1		Level 2		Level 3 ¹
	(dollars in thousands)
As of June 30, 2021
U.S. Treasury securities	$	99,150	$	99,150	$	—	$	—
U.S. Agency securities	24,111		24,111		—		—
Mortgage-backed securities	1,980,596		—		1,980,596		—
States and political subdivision securities	48,377		—		48,377		—
Corporate debt securities	28,244		—		28,244		—
Other	1,036		—		1,036		—
Total securities available for sale	$	2,181,514	$	123,261	$	2,058,253	$	—
Derivatives-assets	$	65,916	$	—	$	65,916	$	—
Derivatives-liabilities	3,745		—		3,745		—
Fair value loans	545,149		—		545,149		—
Loan servicing rights	771		—		—		771
As of September 30, 2020
U.S. Treasury securities	$	50,152	$	50,152	$	—	$	—
U.S. Agency securities	25,060		25,060		—		—
Mortgage-backed securities	1,642,780		—		1,642,780		—
States and political subdivision securities	55,580		—		51,783		3,797
Other	1,054		—		1,054		—
Total securities available for sale	$	1,774,626	$	75,212	$	1,695,617	$	3,797
Derivatives-assets	$	98,380	$	—	$	98,380	$	—
Derivatives-liabilities	98		—		98		—
Fair value loans	655,185		—		655,185		—
Loan servicing rights	1,303		—		—		1,303
1 All following disclosures related to Level 3 recurring and non-recurring assets do not include those deemed to be immaterial.

The following table presents the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three and nine months ended June 30, 2021 and 2020.

	Three Months Ended June 30,				Nine Months Ended June 30,
	2021		2020		2021		2020
	(dollars in thousands)
Loan servicing rights
Balance, beginning of period	$	900	$	1,863	$	1,303	$	2,255
Realized and unrealized loss ¹	(129)		(269)		(532)		(661)
Balance, end of period	$	771	$	1,594	$	771	$	1,594
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.

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GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

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.

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.

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 June 30, 2021 and September 30, 2020.

	Fair Value		Level 1		Level 2		Level 3
	(dollars in thousands)
As of June 30, 2021
Other repossessed property	$	5,786	$	—	$	—	$	5,786
Impaired loans	187,903		—		—		187,903
Mortgage loans held for sale, at lower of cost or fair value	1,377		—		1,377		—
Property held for sale	600		—		—		600
As of September 30, 2020
Other repossessed property	$	17,991	$	—	$	—	$	17,991
Impaired loans	669,968		—		—		669,968
Mortgage loans held for sale, at lower of cost or fair value	12,371		—		12,371		—
Property held for sale	600		—		—		600

The valuation techniques and significant unobservable inputs used to measure Level 3 fair value measurements at June 30, 2021 were as follows.

	Fair Value of Assets / (Liabilities) at June 30, 2021		Valuation Technique(s)	Unobservable Input	Range	Weighted Average
	(dollars in thousands)
Other repossessed property	$	5,786	Appraisal value	Collateral specific adjustment	N/A	N/A
Impaired loans	187,903		Appraisal value	Collateral specific adjustment	N/A	N/A
Property held for sale	600		Appraisal value	Collateral specific adjustment	N/A	N/A

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GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

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.

Fair values for on-balance sheet instruments as of June 30, 2021 and September 30, 2020 are as follows.

		June 30, 2021				September 30, 2020
	Level in Fair Value Hierarchy	Carrying Amount		Fair Value		Carrying Amount		Fair Value
		(dollars in thousands)
Assets
Cash and cash equivalents	Level 1	$	1,756,345	$	1,756,345	$	432,887	$	432,887
Securities purchased under agreements to resell	Level 1	104,523		104,523		—		—
Securities held to maturity	Level 1	13,666		13,707		—		—
Securities held to maturity	Level 2	185,329		184,868		—		—
Securities held to maturity	Level 3	3,450		3,450		—		—
Loans, net, excluding fair valued loans, loans held for sale and impaired loans ¹	Level 3	7,743,354		7,754,795		8,738,617		8,768,314
Liabilities
Time deposits	Level 2	797,185		798,418		1,282,978		1,287,814
FHLB advances and other borrowings	Level 2	120,000		127,027		195,000		204,715
Securities sold under repurchase agreements	Level 2	80,167		80,167		65,506		65,506
Subordinated debentures and subordinated notes payable	Level 2	108,933		96,988		108,832		96,424
1 Includes $29.2 million and $29.0 million of net deferred loan fees at June 30, 2021 and September 30, 2020, respectively, of which carrying value approximates fair value.

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 nine months ended June 30, 2021 and 2020.

	Three Months Ended June 30,				Nine Months Ended June 30,
	2021		2020		2021		2020
	(dollars in thousands, except per share data)
Net income (loss)	$	58,749	$	5,400	$	151,367	$	(691,944)
Weighted average common shares outstanding	55,207,008		55,082,621		55,175,567		55,788,751
Dilutive effect of stock based compensation	317,971		62,998		234,006		—
Weighted average common shares outstanding for diluted earnings per share calculation	55,524,979		55,145,619		55,409,573		55,788,751
Basic earnings per share	$	1.06	$	0.10	$	2.74	$	(12.40)
Diluted earnings per share	$	1.06	$	0.10	$	2.74	$	(12.40)

The Company had zero and 9,570 shares of unvested performance stock as of June 30, 2021 and 2020, 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 zero and 125,544 shares of anti-dilutive stock awards outstanding as of June 30, 2021 and 2020, respectively.

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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, 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:

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 June 30,				Nine Months Ended June 30,
	2021		2020		2021		2020
	(dollars in thousands)
Noninterest income (loss)
Service charges and other fees	$	9,005	$	7,731	$	27,228	$	28,328
Wealth management fees	3,477		2,773		9,688		8,859
Other	700		745		2,429		2,077
Noninterest income from contracts with customers within the scope of ASC Topic 606	13,182		11,249		39,345		39,264
Noninterest income (loss) within the scope of other GAAP Topics ¹	6,189		(22,932)		11,367		(35,297)
Total noninterest income (loss)	$	19,371	$	(11,683)	$	50,712	$	3,967
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.

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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, 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, 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 June 30, 2021 and references to "the comparable period" or "the comparable quarter" refer to the fiscal quarter ended June 30, 2020.

Tax Equivalent Presentation

All references to net interest income, net interest margin, interest income on loans, yield on 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 banking. 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. We serve our customers through 174 branches in attractive markets in Arizona, Colorado, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and 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 placed significant restrictions on businesses and individuals at the outset of the COVID-19 pandemic. While many of these initial restrictions have been lifted, there is still the possibility that certain restrictions could be re-imposed or extended to contain further spread if the rate of infection were to surge again in any of these states, including as a result of the Delta variant that has recently caused an uptick in infections particularly among non-vaccinated individuals. As a financial institution, we are considered an essential business and we have therefore continued to operate on a modified basis throughout the pandemic to comply with governmental restrictions and public health authority guidelines.

We remain focused on keeping our employees safe and our bank running effectively to serve our customers and continue to monitor the continued spread of COVID-19 and its Delta variant. Our branches have been reopened across our footprint, and we are targeting a full return to work on September 7th that still provides for flexible remote work optionality and adherence to CDC guidelines in the office. For our customers, we have supported PPP, having provided over 4,800 loans for $727.3 million in the first round followed by over 4,100 loans for $249.5 million in the second round. We have processed over 4,300 loans totaling $612.0 million related to PPP forgiveness, resulting in an outstanding balance of $364.9 million as of June 30, 2021. Additionally, we granted both full and partial payment deferrals to help provide relief from COVID-19, which resulted in a peak of $1.69 billion of loans on deferral as of the third quarter of fiscal year 2020 that decreased to $19.7 million as of April 16, 2021 and to $0.2 million as of July 16, 2021.

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Furthermore, the onset and continuation of the COVID-19 pandemic has significantly heightened the level of challenges, risks and uncertainties facing our business and continuation of operations, including the following:

•Market interest rates have declined significantly and remain near historic lows, and these reductions, especially if prolonged, could adversely affect our net interest income, net interest margin and earnings;

•We have experienced and continue to anticipate a slowdown in demand for our products and services, including the demand for traditional loans. Although the decline has been offset, in part, due to PPP loans under the CARES Act and other governmental programs established in response to the pandemic, the PPP forgiveness process will continue to lessen the positive impact of these programs;

•We have experienced and continue to anticipate an increase in 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, all of which may result in additional credit charges and other losses in our loan portfolio;

•Volatility in economic forecasts caused by the COVID-19 pandemic create wider uncertainty in the outlook for future net charge off activity resulting in the potential for changing levels of reserves in the allowance for credit losses;

•Declines in fair value of investment securities in our portfolio due to economic uncertainties could reduce the unrealized gains reported as part of our consolidated comprehensive income (loss); and

•In meeting our objective to maintain our capital levels and liquidity position through the COVID-19 pandemic, our Board of Directors indefinitely suspended additional stock buybacks and reduced our dividend payments from pre-pandemic levels, and could still determine to altogether forego future dividends in order to maintain and/or strengthen our capital and liquidity position.

Highlights for the Three and Nine Months Ended June 30, 2021

Net income was $58.7 million, or $1.06 per diluted share, for the third quarter of fiscal year 2021, compared to net income of $5.4 million, or $0.10 per diluted share, for the same period in fiscal year 2020, an increase of $53.3 million. The increase in net income in the current quarter was primarily due to a $33.6 million increase in net interest income after provision for credit losses combined with a $31.1 million increase in noninterest income and a $6.5 million decrease in noninterest expense, partially offset with a $17.8 million increase in provision for income taxes. Our efficiency ratio was 50.9% and 69.4%, respectively, for the third quarter of fiscal year 2021 and 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.

Net interest margin, which measures our ability to maintain interest rates on interest earning assets above those of interest bearing liabilities, was 3.23%, 3.51% and 3.57%, respectively, for the three months ended June 30, 2021, March 31, 2021 and June 30, 2020. Adjusted net interest margin, which reflects the derivative interest expense on interest rate swaps, was 3.13%, 3.40% and 3.47%, 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 each decreased by 34 basis points compared to the same quarter in fiscal year 2020. Net interest margin decreased between the two periods primarily driven by securities yields, which decreased 63 basis points, partially offset by the yield on deposits, which decreased 25 basis points, and loan yields, which increased 3 basis points. A minimal increase of $0.1 million in the current quarter of the cost of interest rate swaps compared to the same period in fiscal year 2020 resulted in the flat difference between adjusted net interest margin and 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 $8.48 billion at June 30, 2021 compared to $10.08 billion at September 30, 2020, a decrease of $1.60 billion, or 15.9%. The net loan reduction was driven by sales of $267.5 million in hotel loans in fiscal year 2021, a net decrease of $362.4 million of PPP loans in the current period, a number of payoffs in nonaccrual and criticized loans, and an increase in paydowns across the commercial, agriculture and consumer portfolios.

Deposits were $11.54 billion at June 30, 2021, an increase of $529.0 million, or 4.8%, compared to $11.01 billion at September 30, 2020, due to a $892.1 million increase in checking and savings deposits across both business and consumer accounts, offset by a $184.9 million decrease in business and consumer time deposits and a $178.2 million decrease in public and brokered deposits. FHLB advances and other borrowings decreased by $75.0 million due to matured borrowings during the period.

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At June 30, 2021, nonaccrual loans were $210.1 million, a decrease of $114.8 million compared to September 30, 2020, driven by a number of payoffs, including $80.7 million of agriculture loans and $34.1 million of non-agriculture loans and no material downgrades. Classified loans were $612.2 million as of June 30, 2021, a decrease of $157.3 million from $769.5 million as of September 30, 2020, driven by a number of upgraded agriculture relationships, and a number of payoffs and sales in both agriculture and non-agriculture loans. Total other repossessed property balances were $11.5 million as of June 30, 2021, a decrease of $8.5 million, or 42.6%, compared to September 30, 2020.

ASU 2016-13, referred to as the current expected credit loss ("CECL") model, was adopted effective October 1, 2020, and as such, the provision for credit losses in fiscal year 2021 reflects current expected credit losses based on forecasted economic and other assumptions, including the estimated impacts of COVID-19, over the remaining expected lives of financial assets and off-balance sheet credit exposures, whereas the fiscal year 2020 methodology applied an incurred loss model.

The balance of the ACL increased to $270.3 million at June 30, 2021 from $149.9 million at September 30, 2020 due to the impact of CECL adoption on October 1, 2020, where we recognized a Day 1 increase in the ACL of $177.3 million. The increase in ACL related to the adoption of CECL was partially offset by a reversal of provision for credit losses of $13.8 million for the first nine months of fiscal year 2021 due to lower loan balances and improved economic factors. For the same period in fiscal year 2020, we recognized a provision for credit losses of $101.5 million as a result of the impact of the COVID-19 pandemic. Net charge-offs for the first nine months of fiscal year 2021 were $43.4 million, or 0.62% of average total loans on an annualized basis, compared to net charge-offs of $24.2 million, or 0.33% of average total loans on an annualized basis, for the comparable period in fiscal year 2020. The increase in charge-offs was driven by $34.0 million of charge-offs related to the sales of certain hotel loans during the period.

Tier 1 capital, total capital and Tier 1 leverage ratios were 14.5%, 16.0% and 10.1%, respectively, at June 30, 2021, compared to 11.8%, 13.3% and 9.4%, respectively, at September 30, 2020. In addition, our Common Equity Tier 1 ratio was 13.7% and 11.0% at June 30, 2021 and September 30, 2020, respectively. Our tangible common equity to tangible assets ratio was 8.8% at June 30, 2021 and 9.2% at September 30, 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.

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, 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 our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021.

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Results of Operations—Three and Nine Months Ended June 30, 2021 and 2020

Overview

The following table highlights certain key financial and performance information for the three and nine months ended June 30, 2021 and 2020.

	Three Months Ended June 30,						Nine Months Ended June 30,
	2021			2020			2021			2020
	(dollars in thousands, except share and per share amounts)
Operating Data:
Interest income (FTE)	$	104,219		$	121,472		$	331,988		$	381,289
Interest expense	5,161			13,620			18,977			63,244
Noninterest income (loss)	19,371			(11,683)			50,712			3,967
Noninterest expense	60,505			67,049			177,057			932,432
(Reversal of) provision for credit losses ³	(20,699)			21,641			(13,800)			101,539
Net income (loss)	58,749			5,400			151,367			(691,944)
Adjusted net income ¹	58,749			5,400			151,367			77,754
Common shares outstanding	55,116,095			55,014,047			55,116,095			55,014,047
Weighted average diluted common shares outstanding	55,524,979			55,145,619			55,409,573			55,788,751
Earnings per common share - diluted	$	1.06		$	0.10		$	2.74		$	(12.40)
Adjusted earnings per common share - diluted ¹	1.06			0.10			2.74			1.39
Performance Ratios:
Net interest margin (FTE) ¹ ²	3.23		%	3.57		%	3.46		%	3.61		%
Adjusted net interest margin (FTE) ¹ ²	3.13		%	3.47		%	3.35		%	3.55		%
Return on average total assets ²	1.81		%	0.17		%	1.59		%	(7.22)		%
Return on average common equity ²	21.2		%	1.9		%	18.7		%	(55.6)		%
Return on average tangible common equity ¹ ²	21.4		%	2.0		%	18.9		%	2.5		%
Efficiency ratio ¹	50.9		%	69.4		%	48.5		%	58.7		%
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.
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 nine months ended June 30, 2021 and 2020.

	Three Months Ended June 30,						Nine Months Ended June 30,
	2021			2020			2021			2020
	(dollars in thousands)
Net interest income:
Total interest income (FTE)	$	104,219		$	121,472		$	331,988		$	381,289
Less: Total interest expense	5,161			13,620			18,977			63,244
Net interest income (FTE)	$	99,058		$	107,852		$	313,011		$	318,045
Net interest margin (FTE) and adjusted net interest margin (FTE) ¹
Average interest-earning assets	$	12,299,046		$	12,156,505		$	12,112,699		$	11,763,523
Average interest-bearing liabilities	11,864,829			11,493,387			11,622,695			11,049,204
Net interest margin (FTE)	3.23		%	3.57		%	3.46		%	3.61		%
Adjusted net interest margin (FTE) ¹	3.13		%	3.47		%	3.35		%	3.55		%
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 $99.1 million for the third quarter of fiscal year 2021, compared to $107.9 million for the same period in fiscal year 2020, a decrease of $8.8 million, or 8.2%. Interest expense decreased $8.4 million driven by a $6.5 million decrease in deposit interest resulting from lower yields on interest-bearing deposits, along with a $1.9 million decrease in borrowings interest. The decrease in interest expense was partially offset by lower interest income of $17.3 million mainly driven by a $15.9 million decrease in loan interest due to lower volumes and lower yields. Securities interest decreased $1.9 million due to lower yields driven by the low interest rate environment.

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For the first nine months of fiscal year 2021, net interest income was $313.0 million, compared to $318.0 million for the same period in fiscal year 2020, a decrease of $5.0 million, or 1.6%. Interest expense decreased $44.2 million driven mainly by a $36.8 million decrease in deposit interest resulting from lower yields on interest-bearing deposits, along with a $7.4 million decrease in borrowings interest. The decrease in interest expense was partially offset by lower interest income of $49.3 million as loan interest decreased $41.0 million from lower volumes and lower yields. Securities interest decreased $8.3 million due to lower yields driven by the low interest rate environment.

Net interest margin was 3.23% and 3.57% for the third quarter of fiscal year 2021 and 2020, respectively, a decrease of 34 basis points, while the adjusted net interest margin was 3.13% and 3.47% for the same periods, respectively, a decrease of 34 basis points. Net interest margin was 3.46% and 3.61% for the first nine months of fiscal year 2021 and 2020, respectively, a decrease of 15 basis points, while the adjusted net interest margin was 3.35% and 3.55% for the same periods, respectively, a decrease of 20 basis points. The decrease in net interest margin for the three month period was primarily driven by securities yields, which decreased 63 basis points, partially offset by the yield on deposits, which decreased 25 basis points and loan yields, which increased 3 basis points. The decrease in net interest margin for the nine month period was primarily driven by securities yields, which decreased 69 basis points, and loan yields, which decreased 23 basis points, partially offset by the yield on deposits, which decreased 49 basis points. A $0.1 million and $4.5 million increase, respectively, in the cost of interest rate swaps between the three and nine month period in fiscal year 2021 and the comparable periods in fiscal year 2020, is the primary driver for the more pronounced decreases in adjusted net interest margin compared to the decreases 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.

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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 nine 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 $712.9 million at June 30, 2021 and $741.5 million at June 30, 2020, 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 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 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.

	Three Months Ended
	June 30, 2021						June 30, 2020
	Average Balance		Interest (FTE)		Yield / Cost ¹		Average Balance		Interest (FTE)		Yield / Cost ¹
	(dollars in thousands)
Assets
Interest-bearing bank deposits ²	$	1,357,821	$	306	0.09	%	$	144,805	$	112	0.31	%
Other interest-earning assets	121,981		348		1.14	%	—		—		—	%
Investment securities	2,318,325		8,642		1.50	%	1,987,648		10,532		2.13	%
Non-ASC 310-30 loans, net ³	8,500,919		94,923		4.48	%	9,974,802		109,326		4.41	%
ASC 310-30 loans, net ⁴	—		—		—	%	49,250		1,502		12.27	%
Loans, net	8,500,919		94,923		4.48	%	10,024,052		110,828		4.45	%
Total interest-earning assets	12,299,046		104,219		3.40	%	12,156,505		121,472		4.02	%
Noninterest-earning assets	743,109						598,159
Total assets	$	13,042,155	$	104,219	3.21	%	$	12,754,664	$	121,472	3.83	%
Liabilities and Stockholders' Equity
Noninterest-bearing deposits	$	2,863,176					$	2,414,567
Interest-bearing deposits	7,834,032		$	2,618	0.13	%	6,974,915		$	5,604	0.32	%
Time deposits	863,923		887		0.41	%	1,430,246		4,407		1.24	%
Total deposits	11,561,131		3,505		0.12	%	10,819,728		10,011		0.37	%
Securities sold under agreements to repurchase	74,785		14		0.08	%	64,645		15		0.09	%
FHLB advances and other borrowings	120,000		853		2.85	%	500,248		2,524		2.03	%
Subordinated debentures and subordinated notes payable	108,913		789		2.91	%	108,766		1,070		3.96	%
Total borrowings	303,698		1,656		2.19	%	673,659		3,609		2.15	%
Total interest-bearing liabilities	11,864,829		$	5,161	0.17	%	11,493,387		$	13,620	0.48	%
Noninterest-bearing liabilities	63,535						97,553
Stockholders' equity	1,113,791						1,163,724
Total liabilities and stockholders' equity	$	13,042,155					$	12,754,664
Net interest spread					3.04	%					3.35	%
Net interest income and net interest margin (FTE)			$	99,058	3.23	%			$	107,852	3.57	%
Less: Tax equivalent adjustment			1,595						1,601
Net interest income and net interest margin - ties to Statements of Comprehensive Income			$	97,463	3.18	%			$	106,251	3.52	%
¹ Annualized for all partial-year periods.
2 Interest income includes $0.1 million for the third quarter of fiscal year 2020 resulting from interest earned on derivative collateral included in other assets on the consolidated balance sheets. For the third quarter of fiscal year 2021, all amounts were included in other interesting-earning assets.
3 Interest income includes $0.0 million and $0.2 million for the third 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.

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	Nine Months Ended
	June 30, 2021						June 30, 2020
	Average Balance		Interest (FTE)		Yield / Cost ¹		Average Balance		Interest (FTE)		Yield / Cost ¹
	(dollars in thousands)
Assets
Interest-bearing bank deposits ²	$	889,362	$	622	0.09	%	$	78,164	$	1,278	2.18	%
Other interest-earning assets	71,085		592		1.11	%	—		—		—	%
Investment securities	2,123,979		25,079		1.58	%	1,959,681		33,359		2.27	%
Non-ASC 310-30 loans, net ³	9,028,273		305,695		4.53	%	9,675,039		342,042		4.72	%
ASC 310-30 loans, net ⁴	—		—		—	%	50,639		4,610		12.16	%
Loans, net	9,028,273		305,695		4.53	%	9,725,678		346,652		4.76	%
Total interest-earning assets	12,112,699		331,988		3.66	%	11,763,523		381,289		4.33	%
Noninterest-earning assets	653,353						1,046,576
Total assets	$	12,766,052	$	331,988	3.48	%	$	12,810,099	$	381,289	3.98	%
Liabilities and Stockholders' Equity
Noninterest-bearing deposits	$	2,746,884					$	2,111,445
Interest-bearing deposits	7,554,204		$	9,780	0.17	%	6,585,100		$	31,060	0.63	%
Time deposits	1,018,492		4,196		0.55	%	1,655,059		19,758		1.59	%
Total deposits	11,319,580		13,976		0.17	%	10,351,604		50,818		0.66	%
Securities sold under agreements to repurchase	74,235		45		0.08	%	62,513		70		0.15	%
FHLB advances and other borrowings	120,000		2,558		2.85	%	526,372		8,737		2.22	%
Subordinated debentures and subordinated notes payable	108,880		2,398		2.94	%	108,715		3,619		4.45	%
Total borrowings	303,115		5,001		2.21	%	697,600		12,426		2.38	%
Total interest-bearing liabilities	11,622,695		$	18,977	0.22	%	11,049,204		$	63,244	0.76	%
Noninterest-bearing liabilities	61,605						97,475
Stockholders' equity	1,081,752						1,663,420
Total liabilities and stockholders' equity	$	12,766,052					$	12,810,099
Net interest spread					3.26	%					3.22	%
Net interest income and net interest margin (FTE)			$	313,011	3.46	%			$	318,045	3.61	%
Less: Tax equivalent adjustment			4,770						4,638
Net interest income and net interest margin - ties to Statements of Comprehensive Income			$	308,241	3.40	%			$	313,407	3.56	%
¹ Annualized for all partial-year periods.
2 Interest income includes $0.8 million for the first nine months of fiscal year 2020 resulting from interest earned on derivative collateral included in other assets on the consolidated balance sheets. For the first nine months of fiscal year 2021, all amounts were included in other interest-earning assets.
3 Interest income includes $0.0 million and $1.2 million for the first nine months 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.

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Interest Income

The following table presents interest income for the three and nine months ended June 30, 2021 and 2020.

	Three Months Ended June 30,				Nine Months Ended June 30,
	2021		2020		2021		2020
	(dollars in thousands)
Interest income:
Loans (FTE)	$	94,923	$	110,828	$	305,695	$	346,652
Investment securities	8,642		10,532		25,079		33,359
Federal funds sold and other	654		112		1,214		1,278
Total interest income (FTE)	104,219		121,472		331,988		381,289
Less: Tax equivalent adjustment	1,595		1,601		4,770		4,638
Total interest income (GAAP)	$	102,624	$	119,871	$	327,218	$	376,651

Total interest income consists primarily of interest income on loans and interest income on our investment portfolio. Total interest income was $104.2 million for the third quarter of fiscal year 2021, compared to $121.5 million for the same period of fiscal year 2020, a decrease of $17.3 million, or 14.2%. Total interest income was $332.0 million for the first nine months of fiscal year 2021, compared to $381.3 million for the same period of fiscal year 2020, a decrease of $49.3 million, or 12.9%. Significant components of interest income are described in further detail below.

Loans. Interest income on loans decreased to $94.9 million in the third quarter of fiscal year 2021 from $110.8 million in the same period in fiscal year 2020, decrease of $15.9 million, or 14.4%. Interest income on loans was $305.7 million for the first nine months of fiscal year 2021, compared to $346.7 million for the same period of fiscal year 2020, a decrease of $41.0 million, or 11.8%. The decrease in loan interest for both periods was attributable to lower loan volumes and loan yields, which increased 3 basis points in third quarter of fiscal year 2021 and decreased 23 basis points in the first nine months of fiscal year 2021, reflecting the impact of PPP loans which yield a lower rate.

Our yield on loans is also affected by market interest rates, the level of adjustable rate loan indices, interest rate floors and caps, customer repayment activity, the level of loans held for sale, portfolio mix, and the level of nonaccrual loans. The average tax equivalent yield on loans was 4.48% for the third quarter of fiscal year 2021, an increase of 3 basis points compared to the same period in fiscal year 2020. Adjusted for the 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 loans was 4.33% for the third quarter of fiscal year 2021, a 4 basis point increase compared to the same period in fiscal year 2020. The average tax equivalent yield on loans was 4.53% for the first nine months of fiscal year 2021, a decrease of 23 basis points compared to the same period in fiscal year 2020, while the adjusted yield on loans was 4.38% for the first nine months of fiscal year 2021, a 27 basis point decrease compared to the same period in fiscal year 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 1.4 years as of June 30, 2021. Approximately 50%, or $4.20 billion, of the portfolio is comprised of fixed rate loans, $545.1 million of which 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 34% are indexed to Wall Street Journal Prime, 27% to 5-year Treasuries, 26% are indexed to 1-month LIBOR and the balance to various other indices. Less than 19% of our total loans' rates are floored, with an average interest rate floor 88 basis points above market rates as of June 30, 2021. In addition, there were approximately 7% of our total loans with rate floors that have not been reached, with an average interest rate 18 basis points below market rates.

Loan-related fee income of $9.5 million is included in interest income for the third quarter of fiscal year 2021, compared to $6.5 million for the same period in fiscal year 2020, an increase of $3.0 million. Loan-related fee income of $31.7 million is included in interest income for the first nine months of fiscal year 2021, compared to $14.6 million for the same period in fiscal year 2020, an increase of $17.1 million. The increases in both periods were driven by PPP loan fee amortization recognized in the current periods. 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.

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Investment Securities Portfolio. The carrying value of investment securities and FHLB stock, which is included in other assets in the consolidated balance sheets, totaled $2.40 billion as of June 30, 2021. Interest income on investments includes income earned on investment securities and FHLB stock. Interest income on investments was $8.6 million for the third quarter of fiscal year 2021, a decrease of $1.9 million, or 17.9%, from $10.5 million for the same period in fiscal year 2020, driven by a yield decrease to 1.50% from 2.13% for the same periods. Interest income on investments was $25.1 million for the first nine months of fiscal year 2021, a decrease of $8.3 million, or 24.8%, from $33.4 million for the same period in fiscal year 2020, driven by a yield decrease to 1.58% from 2.27% for the same periods.

The weighted average life of the investment portfolio was 4.0 and 3.2 years at June 30, 2021 and September 30, 2020, respectively. Average investments represented 18.8% and 16.4% of total average interest-earning assets for the third quarter of fiscal years 2021 and 2020, respectively.

Interest Expense

The following table presents interest expense for the three and nine months ended June 30, 2021 and 2020.

	Three Months Ended June 30,				Nine Months Ended June 30,
	2021		2020		2021		2020
	(dollars in thousands)
Interest expense
Deposits	$	3,505	$	10,011	$	13,976	$	50,818
FHLB advances and other borrowings	867		2,539		2,603		8,807
Subordinated debentures and subordinated notes payable	789		1,070		2,398		3,619
Total interest expense	$	5,161	$	13,620	$	18,977	$	63,244

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 $8.4 million, or 62.1%, to $5.2 million in the third quarter of fiscal year 2021, from $13.6 million in the same period in fiscal year 2020. Total interest expense decreased $44.2 million, or 70.0%, to $19.0 million for the first nine months of fiscal year 2021, from $63.2 million in the same period in fiscal year 2020. Significant components of interest expense are described in further detail below.

Deposits. Interest expense on deposits, consisting of interest-bearing accounts and time deposits, was $3.5 million and $10.0 million for the third quarter of fiscal years 2021 and 2020, respectively, a decrease of $6.5 million. Interest expense on deposits was $14.0 million and $50.8 million for the first nine months of fiscal years 2021 and 2020, respectively, a decrease of $36.8 million. The decreases for both periods were a result of decreasing cost of deposits offset with increases in average deposit balances. Average deposit balances increased to $11.32 billion for the first nine months of fiscal year 2021, from $10.35 billion for the comparable period in fiscal year 2020, an increase of $968.0 million. The cost of deposits decreased to 0.17% for the first nine months of fiscal year 2021 from 0.66% for the same period of fiscal year 2020.

Average noninterest-bearing demand account balances increased to 24.8% of average total deposits for the third quarter of fiscal year 2021 from 22.3% for the comparable period in fiscal year 2020. Total average other liquid accounts, consisting of interest-bearing demand deposits, increased to 67.7% of total average deposits for the third quarter of fiscal year 2021, compared to 64.5% of total average deposits for the comparable period in fiscal year 2020, while time deposit accounts decreased to 7.5% of average total deposits for the third quarter of fiscal year 2021, compared to 13.2% in the comparable period in fiscal year 2020.

FHLB Advances and Other Borrowings. Interest expense on FHLB advances and other borrowings was $0.9 million for the third quarter of fiscal year 2021, a decrease of $1.6 million compared to $2.5 million for the third quarter of fiscal year 2020, reflecting a weighted average cost of 2.85% and 2.03%, respectively, for the same periods. The average balance of FHLB advances and other borrowings was $120.0 million for the first nine months of fiscal year 2021 compared to $526.4 million for the same period in fiscal year 2020. Interest expense on FHLB advances and other borrowings was $2.6 million for the third quarter of fiscal year 2021, a decrease of $6.2 million compared to $8.8 million for the third quarter of fiscal year 2020, reflecting a weighted average cost of 2.85% and 2.22%, respectively, for the same periods. The average rate paid on FHLB advances is impacted by market rates and the various terms and repricing frequency of the specific outstanding borrowings in each year. The weighted average contractual rate paid on our FHLB advances was 2.81% and 2.56% at June 30, 2021 and 2020, respectively, and the average tenor was 28 and 24 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 June 30, 2021, we had pledged $3.42 billion of loans to the FHLB, against which we had borrowed $120.0 million.

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Subordinated Debentures and Subordinated Notes Payable. Interest expense on our outstanding junior subordinated debentures and subordinated notes payable was $0.8 million in third quarter of fiscal year 2021 and $1.1 million in the comparable period in fiscal year 2020, a decrease of $0.3 million. Interest expense on our outstanding junior subordinated debentures and subordinated notes payable was $2.4 million for the first nine months of fiscal year 2021 and $3.6 million in the comparable period in fiscal year 2020, a decrease of $1.2 million. The weighted average contractual rate on outstanding junior subordinated debentures was 2.35% and 2.85% at June 30, 2021 and 2020, respectively. The weighted average contractual rate on outstanding subordinated notes was 3.31% and 4.88% at June 30, 2021 and 2020, 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 nine months periods a summary of the changes in interest income and interest expense on a tax equivalent basis resulting from changes in the volume of average asset and liability balances and changes in the average yields or rates compared with the preceding fiscal year. If significant, the change in interest income or interest expense due to both volume and rate has been prorated between the volume and the rate variances based on the dollar amount of each variance.

	Current Quarter vs Comparable Quarter						Current 9 month period vs Comparable 9 month period
	Volume		Rate		Total		Volume		Rate		Total
	(dollars in thousands)
Increase (decrease) in interest income:
Cash and cash equivalents	$	273	$	—	$	273	$	820	$	(573)	$	247
Other interest earning assets	250		19		269		563		(874)		(311)
Investment securities	1,734		(3,624)		(1,890)		3,151		(11,431)		(8,280)
Loans	(16,998)		1,093		(15,905)		(24,835)		(16,122)		(40,957)
Total decrease	(14,741)		(2,512)		(17,253)		(20,301)		(29,000)		(49,301)
Increase (decrease) in interest expense:
Interest-bearing deposits	620		(3,606)		(2,986)		4,006		(25,286)		(21,280)
Time deposits	(1,311)		(2,209)		(3,520)		(5,765)		(9,797)		(15,562)
Securities sold under agreements to repurchase	2		(3)		(1)		11		(36)		(25)
FHLB advances and other borrowings	(2,427)		756		(1,671)		(8,169)		1,990		(6,179)
Subordinated debentures and subordinated notes payable	1		(282)		(281)		5		(1,226)		(1,221)
Total decrease	(3,115)		(5,344)		(8,459)		(9,912)		(34,355)		(44,267)
(Decrease) increase in net interest income (FTE)	$	(11,626)	$	2,832	$	(8,794)	$	(10,389)	$	5,355	$	(5,034)

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Provision for Credit Losses

We recognized a reversal of provision for credit losses of $20.7 million for the third quarter of fiscal year 2021 compared to a provision for credit losses of $21.6 million for the comparable period in fiscal year 2020, a decrease of $42.3 million between the periods. We recognized reversal of provision for credit losses of $13.8 million for the first nine months of fiscal year 2021 compared to a provision for credit losses of $101.5 million for the comparable period in fiscal year 2020, a decrease of $115.3 million between the periods. The reversal of provision for credit losses for both periods in fiscal year 2021 was due to lower loan balances in both periods and the increased benefit this quarter due to improved economic factors. The provision for credit losses for both periods in fiscal year 2020 was a result of the impact of the COVID-19 pandemic.

	Three Months Ended June 30,				Nine Months Ended June 30,
	2021		2020		2021		2020
	(dollars in thousands)
(Reversal of) provision for credit losses, non-ASC 310-30 loans ¹	$	(20,444)	$	21,601	$	(13,468)	$	101,351
Decrease in provision for unfunded commitments reserve ²	(255)		—		(332)		—
Impairment in loan and lease losses, ASC 310-30 loans	—		40		—		188
(Reversal of) provision for credit losses, total	$	(20,699)	$	21,641	$	(13,800)	$	101,539
1 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.
2 For the three and nine months ended June 30, 2020, provision for unfunded commitments reserve of $2.2 million and $2.9 million, respectively, was recorded in other noninterest expense in the consolidated income statement.

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 nine months 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 June 30,				Nine Months Ended June 30,
Item	Included within F/S Line Item(s):	2021		2020		2021		2020
		(Dollars in thousands)
(Reversal of) provision for credit losses ¹	(Reversal of) provision for credit losses ¹	$	(20,699)	$	21,641	$	(13,800)	$	101,539
Increase in provision for unfunded commitments reserve ¹	Other noninterest expense ¹	—		2,215		—		2,859
Net other repossessed property charges (income)	Net (gain) loss on repossessed property and other related expenses	(760)		2,475		(469)		8,508
Net (recovery) reversal of interest income on nonaccrual loans	Interest income on loans	(2,514)		1,070		(6,134)		4,164
Net realized credit loss on derivatives	Change in fair value of FVO loans and related derivatives	—		1,709		210		1,709
Loan fair value adjustment related to credit	Change in fair value of FVO loans and related derivatives	(4,111)		23,292		(2,674)		35,949
Total credit-related charges		$	(28,084)	$	52,402	$	(22,867)	$	154,728
1 Beginning in the first quarter of fiscal year 2021, increase in provision for unfunded commitments reserve is included in provision for credit losses.

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We continue to evaluate the impact of the COVID-19 pandemic on our loan portfolio. Industries such as hotels & resorts (excluding casino hotels), casino hotels, restaurants, arts and entertainment, oil & energy, retail malls, airlines and healthcare have experienced varied business disruptions due to COVID-19. Since the beginning of the pandemic we have been closely monitoring the following loan segments (excluding PPP loans) given elevated industry risk from COVID-19: hotels & resorts (excluding casino hotels) with $709.7 million, or 8.7% of total loans, restaurants with $121.7 million, or 1.5% of total loans, arts and entertainment with $153.9 million, or 1.9% of total loans, senior care with $379.7 million, or 4.7% of total loans, and skilled nursing with $209.2 million, or 2.6% of total loans, for a total exposure of $1.57 billion, or 19.4% of total loans (excluding PPP loans) as of June 30, 2021, with $194.6 million of these loans being classified as of June 30, 2021 and loan exposure in other segments of identified industries being either immaterial or having not shown general distress thus far.

Noninterest Income

The following table presents noninterest income for the three and nine months ended June 30, 2021 and 2020.

	Three Months Ended June 30,				Nine Months Ended June 30,
	2021		2020		2021		2020
	(dollars in thousands)
Noninterest income
Service charges and other fees	$	9,005	$	7,731	$	27,228	$	28,328
Wealth management fees	3,477		2,773		9,688		8,859
Mortgage banking income, net	2,157		2,422		9,937		5,179
Net gain on sale of securities and other assets	—		—		247		—
Other	2,209		1,190		5,141		3,490
Subtotal, service and product fees	16,848		14,116		52,241		45,856
Derivative interest expense	(3,117)		(3,040)		(9,692)		(5,181)
Change in fair value of FVO loans and related derivatives	4,110		(25,001)		2,480		(37,658)
Other derivative income (loss)	1,530		2,242		5,683		950
Subtotal, changes in fair value for loans at fair value and derivatives	2,523		(25,799)		(1,529)		(41,889)
Total noninterest income (loss)	$	19,371	$	(11,683)	$	50,712	$	3,967

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.

Noninterest income was $19.4 million for the third quarter of fiscal year 2021 compared to a noninterest loss of $11.7 million for the same period in fiscal year 2020, an increase of $31.1 million. Noninterest income was $50.7 million for the first nine months of fiscal year 2021 compared to $4.0 million for the same period in fiscal year 2020, an increase of $46.7 million. Significant components of noninterest income are described in further detail below.

Service and Product Fees. We recognized $16.8 million of noninterest income related to product and service fees in the third quarter of fiscal year 2021, an increase of $2.7 million, or 19.4%, compared to the same period in fiscal year 2020 due to increases in account activity and interchange fees and income from additional investments in bank owned life insurance purchased. We recognized $52.2 million of noninterest income related to product and service fees in for the first nine months of fiscal year 2021, an increase of $6.3 million, or 13.9%, compared to the same period in fiscal year 2020 primarily due to an increase in net mortgage banking income and income from the additional investments in bank owned life insurance purchased.

Changes in fair value for loans at fair value and 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 third quarter of fiscal year 2021, these items accounted for $2.5 million of noninterest income compared to $25.8 million of noninterest loss for the same period in fiscal year 2020. The change for the period was driven by a favorable change in the credit risk adjustment of $27.2 million partially offset by a $0.5 million decrease in swap fees and a $0.1 million increase in the current cost of interest rate swaps due to changes in the interest rate environment. For the first nine months of fiscal year 2021, these items accounted for $1.5 million of noninterest loss compared to $41.9 million of noninterest loss for the same period in fiscal year 2020. The change for the period was driven by a favorable change in the credit risk adjustment of $43.2 million and a $0.2 million increase in swap fees, partially offset by a $4.5 million increase in the current cost of interest rate swaps due to changes in the interest rate environment. We believe that the 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.

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Noninterest Expense

The following table presents noninterest expense for the three and nine months ended June 30, 2021 and 2020.

	Three Months Ended June 30,				Nine Months Ended June 30,
	2021		2020		2021		2020
	(dollars in thousands)
Noninterest expense
Salaries and employee benefits	$	40,239	$	39,042	$	116,918	$	112,259
Data processing and communication	7,054		5,817		19,825		17,713
Occupancy and equipment	5,105		5,251		15,829		15,941
Professional fees	4,644		7,382		12,293		16,409
Advertising	602		750		1,635		2,573
Net (gain) loss on repossessed property and other related expenses	(760)		2,475		(469)		8,508
Goodwill and intangible assets impairment	—		—		—		742,352
Other ¹	3,621		6,332		11,026		16,677
Total noninterest expense	$	60,505	$	67,049	$	177,057	$	932,432

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 asset impairment and other related expenses. Noninterest expense was $60.5 million and $67.0 million for the third quarter of fiscal year 2021 and 2020, respectively, a decrease of $6.5 million. Noninterest expense was $177.1 million and $190.1 million (excluding $742.4 million of goodwill and intangible asset impairment) for the first nine months of fiscal year 2021 and 2020, respectively, a decrease of $13.0 million. The decreases for both periods were primarily driven by lower net loss on repossessed property and other related expenses, decreases in professional fees and other noninterest expense, partially offset by increases in salaries and employee benefits.

Our efficiency ratio was 50.9% and 69.4% for the third quarter of fiscal years 2021 and 2020, respectively. Our efficiency ratio was 48.5% and 58.7% for the first nine months of fiscal years 2021 and 2020, respectively. The higher ratios for both prior periods were mainly due to emergency rate cuts in the second quarter of fiscal year 2020 as a result of the COVID-19 pandemic which decreased net revenues, a decrease in deposit service charges from lower account activity combined with increased expense results from both one-off and recurring costs. For more information on our efficiency ratio, including a reconciliation to the most directly comparable GAAP financial measures, see "—Non-GAAP Financial Measures" section.

Provision for Income Taxes

The provision for income taxes varies due to the amount of taxable income, the level and effectiveness of tax-advantaged assets and tax credit funds and the rates charged by federal and state authorities. The provision for income taxes of $18.3 million for the third quarter of fiscal year 2021 represents an effective tax rate of 23.7% compared to a provision for income taxes of $0.5 million, or an effective tax rate of 8.1%, for the comparable period of fiscal year 2020. The provision for income taxes of $44.3 million for the first nine months of fiscal year 2021 represents an effective tax rate of 22.7% compared to a benefit for income taxes of $24.7 million, or an effective tax rate of 3.4%, for the comparable period of fiscal year 2020. The substantial change in the effective tax rate for both prior comparable periods was due to the impairment of goodwill and certain intangible assets and provision for loan and lease losses in the second quarter of fiscal year 2020. 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 21.8% for the first nine months of fiscal year 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 June 30,				Nine Months Ended June 30,
	2021		2020		2021		2020
Return on average total assets	1.81	%	0.17	%	1.59	%	(7.22)	%
Return on average common equity	21.2	%	1.9	%	18.7	%	(55.6)	%
Return on average tangible common equity ¹	21.4	%	2.0	%	18.9	%	2.5	%
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.

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Analysis of Financial Condition

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

	As of June 30, 2021			As of September 30, 2020
	(dollars in thousands)
Balance Sheet and Other Information:
Total assets	$	13,070,229		$	12,604,439
Loans ¹	8,477,783			10,076,142
Allowance for credit losses ⁴	270,298			149,887
Deposits	11,537,777			11,008,779
Stockholders' equity	1,161,069			1,162,933
Tangible common equity ²	1,155,679			1,156,769
Tier 1 capital ratio	14.5		%	11.8		%
Total capital ratio	16.0		%	13.3		%
Tier 1 leverage ratio	10.1		%	9.4		%
Common equity tier 1 ratio	13.7		%	11.0		%
Tangible common equity / tangible assets ²	8.8		%	9.2		%
Book value per share - GAAP	$	21.07		$	21.14
Tangible book value per share ²	$	20.97		$	21.03
Nonaccrual loans / total loans	2.48		%	3.22		%
Net charge-offs (recoveries) / average total loans ³	0.62		%	0.40		%
Allowance for credit losses ⁴ / total loans	3.19		%	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.
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, 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.

Our total assets were $13.07 billion at June 30, 2021, compared with $12.60 billion at September 30, 2020, an increase of $465.8 million, or 3.7%. The increase in total assets during the first nine months of fiscal year 2021 was principally attributable to an increase in cash and cash equivalents of $1.32 billion and an increase in investment securities of $609.3 million, partially offset by a decrease in net loans of $1.72 billion. At June 30, 2021, loans were $8.48 billion, compared to $10.08 billion at September 30, 2020. See "—Loan Portfolio" within this section for further discussion on the decrease in net loans. During the first nine months of fiscal year 2021, total deposits increased by $529.0 million, or 4.8%, compared to September 30, 2020. See "—Deposits" within this section for further discussion on the increase in total deposits.

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Loan Portfolio

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

	June 30, 2021		September 30, 2020 1
	(dollars in thousands)
Construction and development	$	433,293	$	509,644
Owner-occupied CRE	1,318,196		1,417,394
Non-owner-occupied CRE	2,244,335		2,894,380
Multifamily residential real estate	592,544		533,983
Total commercial real estate	4,588,368		5,355,401
Agriculture	1,438,499		1,722,696
Commercial non-real estate	1,710,938		2,165,038
Residential real estate ³	631,688		730,812
Consumer and other ²	108,290		102,195
Total loans	8,477,783		10,076,142
Allowance for credit losses	(270,298)		(149,887)
Loans, net	$	8,207,485	$	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 nine months of fiscal year 2021, total loans decreased by 15.9%, or $1.60 billion, compared to September 30, 2020. The net loan reduction was driven by sales of $267.5 million in hotel loans in fiscal year 2021, a net decrease of $362.4 million of PPP loans in the current period, a number of payoffs in nonaccrual and criticized loans, and an increase in paydowns across the commercial, agriculture and consumer portfolios.

The following table presents an analysis of the amortized cost of our loan portfolio at June 30, 2021, by borrower and collateral type and by each of the major geographic areas we use to manage our markets.

	June 30, 2021
	South Dakota / Minnesota / North Dakota			Iowa /  Missouri			Nebraska / Kansas			Arizona			Colorado			Specialized Assets ¹			Corporate and Other ²			Total			%
	(dollars in thousands)
Construction and development	$	52,264		$	44,178		$	98,531		$	115,716		$	98,859		$	26,287		$	(2,542)		$	433,293		5.1	%
Owner-occupied CRE	306,240			362,051			217,033			166,697			252,582			9,011			4,582			1,318,196			15.5	%
Non-owner-occupied CRE	470,935			582,122			335,692			264,938			383,148			204,878			2,622			2,244,335			26.5	%
Multifamily residential real estate	219,026			123,748			215,386			6,513			28,264			1,014			(1,407)			592,544			7.0	%
Total commercial real estate	1,048,465			1,112,099			866,642			553,864			762,853			241,190			3,255			4,588,368			54.1	%
Agriculture	360,568			232,460			93,416			591,526			115,919			28,846			15,764			1,438,499			17.0	%
Commercial non-real estate	238,326			527,132			421,182			104,242			116,599			29,949			273,508			1,710,938			20.2	%
Residential real estate ³	196,733			171,314			141,513			50,616			59,541			13,396			(1,425)			631,688			7.4	%
Consumer and other	12,101			27,524			26,292			542			1,575			6			40,250			108,290			1.3	%
Total	$	1,856,193		$	2,070,529		$	1,549,045		$	1,300,790		$	1,056,487		$	313,387		$	331,352		$	8,477,783		100.0	%
% by location	21.9		%	24.4		%	18.3		%	15.3		%	12.5		%	3.7		%	3.9		%	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.

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The following table presents additional detail regarding our agriculture, CRE and residential real estate loans at June 30, 2021.

	June 30, 2021
	(dollars in thousands)
Construction and development	$	433,293
Owner-occupied CRE	1,318,196
Non-owner-occupied CRE	2,244,335
Multifamily residential real estate	592,544
Total commercial real estate	4,588,368
Agriculture real estate	680,975
Agriculture operating loans	757,524
Total agriculture	1,438,499
Commercial non-real estate	1,710,938
Home equity lines of credit	104,516
Closed end first lien	502,193
Closed end junior lien	24,979
Total residential real estate	631,688
Consumer and other	108,290
Total	$	8,477,783

Commercial Real Estate. CRE includes commercial and residential construction and development, owner-occupied CRE, non-owner-occupied CRE, 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 March 31, 2021, we were ranked the 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, the adverse effects of tariffs imposed on the export of agricultural products, and the effects of waivers of the amount of ethanol to be blended into the country's gasoline production. While these events, the continuing impact of the COVID-19 pandemic or a further downturn in the agriculture economy, could directly and adversely affect our agricultural loan portfolio and indirectly and adversely impact other lending categories including commercial non-real estate, CRE, residential real estate and consumer, 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 through providing a tailored range of integrated products and services, including lending, to small- and medium-enterprise 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 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 mortgages and rural home mortgages.

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 includes all other loan relationships that do not fit within the categories above, primarily consumer and commercial credit cards, customer deposit account overdrafts, and loans in process.

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The following table presents the maturity distribution of our loan portfolio as of June 30, 2021. The maturity dates were determined based on the contractual maturity date of the loan.

	June 30, 2021
	1 Year or Less		>1 Through 5 Years		>5 Years		Total
	(dollars in thousands)
Maturity distribution:
Construction and development	$	180,706	$	204,599	$	47,988	$	433,293
Owner-occupied CRE	78,438		505,523		734,235		1,318,196
Non-owner-occupied CRE	190,434		938,342		1,115,559		2,244,335
Multifamily residential real estate	116,272		234,066		242,206		592,544
Total commercial real estate	565,850		1,882,530		2,139,988		4,588,368
Agriculture	682,936		438,573		316,990		1,438,499
Commercial non-real estate	635,245		711,607		364,086		1,710,938
Residential real estate	40,435		130,295		460,958		631,688
Consumer and other	7,292		74,690		26,308		108,290
Total	$	1,931,758	$	3,237,695	$	3,308,330	$	8,477,783

The following table presents the distribution, as of June 30, 2021, of our loans that were due after one year between fixed and variable interest rates.

	June 30, 2021
	Fixed		Variable		Total
	(dollars in thousands)
Maturity distribution:
Construction and development	$	52,425	$	200,162	$	252,587
Owner-occupied CRE	739,814		499,944		1,239,758
Non-owner-occupied CRE	909,655		1,144,246		2,053,901
Multifamily residential real estate	218,879		257,393		476,272
Total commercial real estate	1,920,773		2,101,745		4,022,518
Agriculture	569,769		185,794		755,563
Commercial non-real estate	715,092		360,601		1,075,693
Residential real estate	308,056		283,197		591,253
Consumer and other	42,139		58,859		100,998
Total	$	3,555,829	$	2,990,196	$	6,546,025

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 $11.5 million as of June 30, 2021, a decrease of $8.5 million, or 42.6%, compared to September 30, 2020, due primarily to three large liquidations during the period.

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

	Three Months Ended June 30, 2021		Nine Months Ended June 30, 2021
	(dollars in thousands)
Balance, beginning of period	$	17,529	$	20,034
Additions to other repossessed property	3,151		4,029
Valuation adjustments and other	(241)		(714)
Sales	(8,941)		(11,851)
Balance, end of period	$	11,498	$	11,498

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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 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.

	June 30, 2021			September 30, 2020
	(dollars in thousands)
Nonaccrual loans ¹
Construction and development	$	22		n/a ³
Owner-occupied CRE	13,925			n/a ³
Non-owner-occupied CRE	6,972			n/a ³
Multifamily residential real estate	6,883			n/a ³
Total commercial real estate	27,802			$	73,501
Agriculture	136,958			217,642
Commercial non-real estate	38,842			26,918
Residential real estate	6,450			6,811
Consumer and other	31			74
Total nonaccrual loans	210,083			324,946
Other repossessed property	11,498			20,034
Total nonperforming assets	221,581			344,980
Performing TDRs	40,872			35,205
Total nonperforming and restructured assets	$	262,453		$	380,185
Accruing loans 90 days or more past due	$	10		$	—
Nonperforming TDRs included in total nonaccrual loans	36,312			62,792
Percent of total assets
Total nonaccrual loans	1.61		%	2.58		%
Other repossessed property	0.09		%	0.16		%
Nonperforming assets ²	1.70		%	2.74		%
Nonperforming and restructured assets ²	2.01		%	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 June 30, 2021 and September 30, 2020, our nonperforming assets were 1.70% and 2.74%, respectively, of total assets. Nonaccrual loans were $210.1 million as of June 30, 2021, which represented a total decrease in nonaccrual loans of $114.8 million compared to $324.9 million at September 30, 2020. The decrease resulted from a number of payoffs including $80.7 million of agriculture loans and $34.1 million of non-agriculture loans and no material downgrades.

We recognized approximately $7.2 million of interest income on loans that were on nonaccrual for the first nine months of fiscal year 2021. We had average nonaccrual loans (calculated as a two-point average) of $267.5 million outstanding during the first nine months of fiscal year 2021. Based on the average loan portfolio yield for these loans for the first nine months of fiscal year 2021, we estimate that interest income would have been $9.1 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 "special mention" or worse because that rating indicates we have identified some potential weakness emerging; but loans rated "special mention" will not necessarily become problem loans or become impaired. Aside from the loans rated "special mention", we do not believe that we have any potential problem loans as of June 30, 2021 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.

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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.

	June 30, 2021						September 30, 2020
	Performing TDRs		Nonperforming TDRs		Total		Performing TDRs		Nonperforming TDRs		Total
	(dollars in thousands)
Construction and development	$	—	$	22	$	22	n/a ¹		n/a ¹		n/a ¹
Owner-occupied CRE	3,346		4,166		7,512		n/a ¹		n/a ¹		n/a ¹
Non-owner-occupied CRE	11,756		10		11,766		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	15,102		4,198		19,300		$	23,215	$	11,913	$	35,128
Agriculture	20,908		9,275		30,183		2,976		45,971		48,947
Commercial non-real estate	4,626		22,769		27,395		8,734		4,803		13,537
Residential real estate	236		52		288		277		74		351
Consumer and other	—		18		18		3		31		34
Total	$	40,872	$	36,312	$	77,184	$	35,205	$	62,792	$	97,997
1 Balance for this segment is included in total commercial real estate for September 30, 2020.

As of June 30, 2021, total performing TDRs increased $5.7 million, or 16.1%, compared to September 30, 2020. Total nonperforming TDRs decreased $26.5 million, or 42.2%, compared to September 30, 2020 primarily due to several relationship payoffs in the agriculture portfolio during the period.

Allowance for Credit Losses

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 loan 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 calculated 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 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 pool 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.

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

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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 credit losses, including provisions for credit losses, charge-offs and recoveries, for the periods indicated.

	At and for the Nine Months Ended June 30, 2021			At and for the Fiscal Year Ended September 30, 2020
	(dollars in thousands)
Allowance for credit losses on loans:
Balance, beginning of period	$	149,887		$	70,774
Adoption of ASU 2016-13, as amended	177,289			—
Provision for credit losses ³	(13,468)			118,204
(Improvement) impairment of ASC 310-30 loans	—			188
Charge-offs:
Construction and development	(27)			n/a ⁴
Owner-occupied CRE	(483)			n/a ⁴
Non-owner-occupied CRE	(36,951)			n/a ⁴
Multifamily residential real estate	(377)			n/a ⁴
Total commercial real estate	(37,838)			(5,181)
Agriculture	(5,042)			(21,705)
Commercial non-real estate	(4,750)			(14,178)
Residential real estate	(300)			(615)
Consumer and other	(619)			(3,071)
Total charge-offs	(48,549)			(44,750)
Recoveries:
Construction and development	377			n/a ⁴
Owner-occupied CRE	98			n/a ⁴
Non-owner-occupied CRE	455			n/a ⁴
Multifamily residential real estate	—			n/a ⁴
Total commercial real estate	930			1,395
Agriculture	2,673			2,189
Commercial non-real estate	860			1,018
Residential real estate	248			453
Consumer and other	428			416
Total recoveries	5,139			5,471
Net loan charge-offs	(43,410)			(39,279)
Balance, end of period	$	270,298		$	149,887
Average total loans for the period ¹	$	9,320,370		$	9,908,495
Total loans at period end ¹	8,477,783			10,076,142
Ratios
Net charge-offs to average total loans ²	0.62		%	0.40		%
Allowance for credit losses on loans to:
Total loans	3.19		%	1.49		%
Nonaccruing loans	128.66		%	46.13		%
1 Loans are shown at amortized cost.
2 Annualized for partial-year periods.
3 For June 30, 2021, (reversal of) provision for credit losses in the consolidated statements of income includes $(0.3) 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.

In the first nine months of fiscal year 2021, net charge-offs were $43.4 million, or 0.62%, of average total loans on an annualized basis, comprised of $48.5 million of charge-offs and $5.1 million of recoveries. The net charge-offs included $34.0 million of charge-offs related to the sales of certain hotel loans during the period. Excluding those, net charge-offs for the period were $9.4 million, or 0.14% of average total loans (annualized). For fiscal year 2020, net charge-offs were $39.3 million, or 0.40%, of average total loans.

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At June 30, 2021, the allowance for credit losses on loans was 3.19% of our total loan portfolio, compared to 1.49% at September 30, 2020. The balance of the ACL increased to $270.3 million from $149.9 million over the same period due to the impact of CECL adoption on October 1, 2020, where we recognized a Day 1 increase in the 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 to the adoption of CECL was partially offset by a reversal of provision for credit losses of $13.8 million for the first nine months of fiscal year 2021 due to lower loan balances and improved economic factors. For the same period in fiscal year 2020, we recognized a provision for credit losses of $101.5 million as a result of the impact of the COVID-19 pandemic.

Additionally, a portion of our loans which are carried at fair value, totaling $545.1 million at June 30, 2021 and $655.2 million at September 30, 2020, respectively, have no associated allowance for 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 credit losses to total loans lower. The amount of fair value adjustment related to credit risk on these loans was $23.3 million and $30.5 million at June 30, 2021 and September 30, 2020, respectively, or 0.28% and 0.30% of total loans, respectively.

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

	June 30, 2021				Adjusted balance September 30, 2020 ¹
	Amount		Percent		Amount		Percent
	(dollars in thousands)
Allocation of allowance for credit losses on loans:
Construction and development	$	16,180	6.0	%	$	7,012	4.7	%
Owner-occupied CRE	20,432		7.5	%	$	20,530	13.7	%
Non-owner-occupied CRE	125,956		46.6	%	$	50,965	34.0	%
Multifamily residential real estate	6,161		2.3	%	$	6,726	4.5	%
Total commercial real estate	168,729		62.4	%	$	85,233	56.9	%
Agriculture	40,657		15.0	%	27,018		18.0	%
Commercial non-real estate	51,024		18.9	%	27,599		18.4	%
Residential real estate	8,038		3.0	%	7,465		5.0	%
Consumer and other	1,850		0.7	%	2,572		1.7	%
Total	$	270,298	100.0	%	$	149,887	100.0	%
1 At September 30, 2020, the allowance balances were reclassified to align with the eight loan portfolio pools 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 credit loss provisions. We review the appropriateness of our allowance for credit losses on a monthly basis. Management monitors closely all past due and restructured loans in assessing the appropriateness of its allowance for 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 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 unfunded lending reserve related commitments that represents our estimate of 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 unfunded lending-related commitments reserve was $2.1 million and $2.4 million at June 30, 2021 and September 30, 2020, respectively, and is recorded in accrued expenses and other liabilities in the consolidated balance sheet.

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Investment Securities

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

	June 30, 2021		September 30, 2020
	(dollars in thousands)
Securities available for sale
U.S. Treasury securities	$	99,047	$	49,924
U.S. Agency securities	24,976		24,974
Mortgage-backed securities:
Government National Mortgage Association	312,811		485,689
Federal Home Loan Mortgage Corporation	977,156		578,650
Federal National Mortgage Association	439,752		287,842
Small Business Assistance Program	232,089		244,653
States and political subdivision securities	47,287		54,224
Corporate debt securities	28,000		—
Other	1,006		1,006
Total	$	2,162,124	$	1,726,962
Securities held to maturity
U.S. Treasury securities	$	13,666	$	—
Mortgage-backed securities:
Government National Mortgage Association	45,964		—
Federal Home Loan Mortgage Corporation	53,616		—
Federal National Mortgage Association	46,408		—
Small Business Assistance Program	39,341		—
States and political subdivision securities	3,450		—
Total	$	202,445	$	—

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 securities 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, 2020, the carrying value of the portfolio has increased by $609.3 million, or 34.3%.

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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 June 30, 2021. 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.

	June 30, 2021
	Due in one year or less				Due after one year through five years				Due after five years through ten years				Due after ten years				Mortgage-backed securities				Securities without contractual maturities				Total
	Amount		WA Yield		Amount		WA Yield		Amount		WA Yield		Amount		WA Yield		Amount		WA Yield		Amount		WA Yield		Amount		WA Yield
	(dollars in thousands)
Securities available for sale
U.S. Treasury securities	$	—	—	%	$	49,362	0.78	%	$	49,685	1.22	%	$	—	—	%	$	—	—	%	$	—	—	%	$	99,047	1.00	%
U.S. Agency securities	—		—	%	24,976		1.13	%	—		—	%	—		—	%	—		—	%	—		—	%	24,976		1.13	%
Mortgage-backed securities	—		—	%	—		—	%	—		—	%	—		—	%	1,961,808		1.54	%	—		—	%	1,961,808		1.54	%
States and political subdivision securities ¹ ²	18,198		1.72	%	20,754		1.82	%	8,335		1.99	%	—		—	%	—		—	%	—		—	%	47,287		1.81	%
Corporate debt securities	—		—	%	28,000		3.20	%	—		—	%	—		—	%	—		—	%	—		—	%	28,000		3.20	%
Other	—		—	%	—		—	%	—		—	%	—		—	%	—		—	%	1,006		—	%	1,006		—	%
Total	$	18,198	1.72	%	$	123,092	0.85	%	$	58,020	1.33	%	$	—	—	%	$	1,961,808	1.54	%	$	1,006	—	%	$	2,162,124	1.54	%
Securities held to maturity
U.S. Treasury securities	$	—	—	%	$	—	—	%	$	13,666	1.38	%	$	—	—	%	$	—	—	%	$	—	—	%	$	13,666	1.38	%
Mortgage-backed securities	—		—	%	—		—	%	—		—	%	—		—	%	185,329		1.23	%	—		—	%	185,329		1.23	%
States and political subdivision securities ¹ ²	150		3.00	%	500		2.00	%	2,800		1.78	%	—		—	%	—		—	%	—		—	%	3,450		1.86	%
Total	$	150	3.00	%	$	500	2.00	%	$	16,466	1.45	%	$	—	—	%	$	185,329	1.23	%	$	—	—	%	$	202,445	1.25	%
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.

Available for sale securities are stated at fair value. For available for sale debt securities in 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 Company will be required to sell the security before recovery of its amortized cost basis. If either criteria is met, the entire amount of unrealized loss is recognized in the consolidated income statement with a corresponding adjustment to the security's amortized cost basis.

If neither criteria is met, the 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 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 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 taxes, and is included in stockholders’ equity as a component of accumulated other comprehensive income (loss).

Debt securities for which the Company has the ability and positive intent to hold until maturity are classified as held to maturity. Held to maturity securities are stated at amortized cost, which represents actual cost adjusted for premium amortization and discount accretion.

Deposits

We obtain funds from depositors by offering consumer and business interest-bearing accounts and term time deposits. At June 30, 2021 and September 30, 2020, our total deposits were $11.54 billion and $11.01 billion, respectively, representing an increase of $529.0 million, or 4.8%, due to a $892.1 million increase in checking and savings deposits across both business and consumer accounts, offset by a $184.9 million decrease in business and consumer time deposits and a $178.2 million decrease in public and brokered deposits.

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The following table presents the balances and weighted average cost of our deposit portfolio at June 30, 2021 and September 30, 2020.

	June 30, 2021				September 30, 2020
	Amount		Weighted Avg. Cost		Amount		Weighted Avg. Cost
	(dollars in thousands)
Noninterest-bearing demand	$	2,958,488	—	%	$	2,586,743	—	%
Interest-bearing demand	7,782,104		0.13	%	7,139,058		0.26	%
Time deposits, greater than $250,000	183,820		0.70	%	352,913		1.12	%
Time deposits, less than or equal to $250,000	613,365		0.32	%	930,065		0.75	%
Total	$	11,537,777	0.12	%	$	11,008,779	0.27	%

At June 30, 2021 and September 30, 2020, we had $88.1 million and $329.0 million, respectively, in brokered deposits, a decrease of $240.9 million, or 73.2%.

Municipal public deposits constituted $1.31 billion and $1.25 billion of our deposit portfolio at June 30, 2021, and September 30, 2020, respectively, of which $929.1 million and $859.7 million, respectively, were required to be collateralized. Our top 10 depositors were responsible for 7.7% and 6.4% of our total deposits at June 30, 2021 and September 30, 2020, respectively.

The following table presents deposits by region.

	June 30, 2021		September 30, 2020
	(dollars in thousands)
South Dakota / Minnesota / North Dakota	$	2,978,809	$	2,870,119
Iowa / Missouri	3,446,128		3,184,321
Nebraska / Kansas	3,009,231		2,833,921
Arizona	652,397		590,567
Colorado	1,380,128		1,300,351
Specialized Assets	19,770		—
Other	51,314		229,500
Total deposits	$	11,537,777	$	11,008,779

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 June 30, 2021 and September 30, 2020, our time deposits greater than $250,000 totaled $183.8 million and $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 June 30, 2021.

	June 30, 2021
	Greater than $250,000			Less than or equal to $250,000
	(dollars in thousands)
Remaining maturity:
Three months or less	$	51,972		$	157,487
Over three through six months	44,936			143,720
Over six through twelve months	59,025			186,230
Over twelve months	27,887			125,928
Total	$	183,820		$	613,365
Percent of total deposits	1.6		%	5.3		%

At June 30, 2021 and September 30, 2020, the average remaining maturity of all time deposits was approximately 9 and 8 months, respectively. The average time deposits amount per account was approximately $26,687 and $37,174 at June 30, 2021 and September 30, 2020, respectively.

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Derivatives

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 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 $107.6 million and $80.7 million as of June 30, 2021 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 $0.2 million and nominal at June 30, 2021 and September 30, 2020, respectively, based on the fair value of the underlying swaps.

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 Nine Months Ended June 30, 2021			At and for the Fiscal Year Ended September 30, 2020
	(dollars in thousands)
Short-term borrowings:
Securities sold under agreements to repurchase	$	80,167		$	65,506
Other short-term borrowings	—			75,000
Total short-term borrowings	$	80,167		$	140,506
Maximum amount outstanding at any month-end during the period	$	80,355		$	539,809
Average amount outstanding during the period	74,235			218,340
Weighted average rate for the period	0.08		%	0.75		%
Weighted average rate as of date indicated	0.08		%	0.09		%

Other Borrowings

In addition to the short-term borrowings above, we also had FHLB long-term borrowings of $120.0 million outstanding as of both June 30, 2021 and September 30, 2020.

We had outstanding $73.9 million and $73.8 million of junior subordinated debentures to affiliated trusts in connection with the issuance of trust preferred securities by such trusts as of June 30, 2021 and September 30, 2020, respectively. We are permitted under applicable laws and regulations to count these trust preferred securities as part of our Tier 1 capital.

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We issued $35.0 million of fixed-to-floating rate subordinated notes that mature on August 15, 2025 through a private placement. The notes, whose eligibility as Tier 2 capital was reduced by 20% beginning in the quarter ended September 30, 2020, and whose eligibility will continue to reduce 20% on the anniversary date thereof each of the next four years, bear interest at a rate per annum equal to three-month LIBOR for the related interest period plus 3.150%, payable quarterly on each November 15, February 15, April 15 and August 15. During the third quarter of fiscal year 2021, we incurred $0.8 million in interest expense on all outstanding subordinated debentures and notes compared to $1.1 million in the same period in fiscal year 2020. During the first nine months of fiscal year 2021, we incurred $2.4 million in interest expense on all outstanding subordinated debentures and notes compared to $3.6 million in the same period in fiscal year 2020.

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 June 30, 2021. Customer deposit obligations categorized as "not determined" include noninterest-bearing demand accounts and interest-bearing demand accounts with no stated maturity date.

	June 30, 2021
	Less Than 1 Year		1 to 2 Years		2 to 5 Years		>5 Years		Not Determined		Total
	(dollars in thousands)
Contractual Obligations:
Customer deposits	$	613,294	$	100,233	$	52,059	$	1,523	$	10,770,668	$	11,537,777
Securities sold under agreement to repurchase	80,167		—		—		—		—		80,167
FHLB advances and other borrowings	—		30,000		90,000		—		—		120,000
Subordinated debentures	—		—		—		75,920		—		75,920
Subordinated notes payable	—		—		35,000		—		—		35,000
Accrued interest payable	1,773		—		—		—		—		1,773
Interest on FHLB advances	3,372		2,742		1,839		—		—		7,953
Interest on subordinated debentures	1,787		1,787		5,361		14,776		—		23,711
Interest on subordinated notes payable	1,157		1,157		2,459		—		—		4,773
Other Commitments:
Commitments to extend credit—non-credit card	$	1,406,527	$	225,981	$	253,783	$	216,852	$	—	$	2,103,143
Commitments to extend credit—credit card	128,174		—		—		—		—		128,174
Letters of credit	52,870		—		—		—		—		52,870

We rent certain premises and equipment under operating leases. See Note 8 to the consolidated financial statements for additional information on long-term lease arrangements.

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 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.

	June 30, 2021		September 30, 2020
	(dollars in thousands)
Commitments to extend credit	$	2,231,317	$	2,138,138
Letters of credit	52,870		65,707
Total	$	2,284,187	$	2,203,845

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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.

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 June 30, 2021, our holding company had $30.0 million of cash. During the third quarter of fiscal year 2021, we declared and paid a dividend of $0.01 per common share. The outstanding amount under our private placement subordinated capital notes was $35.0 million at June 30, 2021. 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, 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.

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 June 30, 2021, our Bank had cash of $1.76 billion (inclusive of $30.0 million of cash from our holding company) and $2.18 billion of highly-liquid securities held in our investment portfolio, of which $1.30 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 $120.0 million in FHLB borrowings at June 30, 2021, with additional available lines of $1.79 billion. Our Bank also had an additional borrowing capacity of $911.0 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 June 30, 2021, we had a total of $2.28 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.

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The following table presents our regulatory capital ratios at June 30, 2021 and the standards for both well-capitalized depository institutions and minimum capital requirements. Our capital ratios exceeded applicable regulatory requirements as of that date.

	June 30, 2021
	Actual
	Capital Amount		Ratio		Minimum Capital Requirement Ratio ¹		Well Capitalized Ratio
	(dollars in thousands)
Great Western Bancorp, Inc.
Tier 1 capital	$	1,334,600	14.5	%	6.0	%	N/A
Total capital	1,473,415		16.0	%	8.0	%	N/A
Tier 1 leverage	1,334,600		10.1	%	4.0	%	N/A
Common equity Tier 1 ²	1,260,666		13.7	%	4.5	%	N/A
Risk-weighted assets	9,230,762
Great Western Bank
Tier 1 capital	$	1,332,490	14.4	%	6.0	%	8.0	%
Total capital	1,443,306		15.6	%	8.0	%	10.0	%
Tier 1 leverage	1,332,490		10.1	%	4.0	%	5.0	%
Common equity Tier 1 ²	1,332,490		14.4	%	4.5	%	6.5	%
Risk-weighted assets	9,228,725
1 Does not include capital conservation buffer, which was 2.5% at June 30, 2021.

At June 30, 2021 and September 30, 2020, our Tier 1 capital included an aggregate of $73.9 million and $73.8 million, respectively, of trust preferred securities issued by our subsidiaries, net of fair value adjustment. At June 30, 2021, our Tier 2 capital included $110.8 million of the allowance for credit losses and $28.0 million of subordinated capital notes whose eligibility as Tier 2 capital was reduced by 20% beginning in the quarter ending September 2020. At September 30, 2020, our Tier 2 capital included $127.2 million of the allowance for credit losses and $28.0 million of subordinated capital notes. Our total risk-weighted assets were $9.23 billion at June 30, 2021.

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 GAAP. We disclose net interest income and related ratios and analysis on a taxable-equivalent basis, which may also be considered non-GAAP financial measures. We believe this presentation to be the preferred industry measurement of net interest income as it provides a relevant comparison of net interest income arising from taxable and tax-exempt sources. In addition, certain performance measures, including the efficiency ratio and net interest margin utilize net interest income on a taxable-equivalent basis.

In particular, we evaluate our profitability and performance based on our adjusted net income, adjusted earnings per common share, 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 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 loans and adjusted yield on loans. We adjust each of these four measures to include the 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.

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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 nine months ended:						At or for the three months ended:
	June 30, 2021			June 30, 2020			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020
	(Dollars in thousands except share and per share amounts)
Adjusted net income and adjusted earnings per common share:
Net income (loss) - GAAP	$	151,367		$	(691,944)		$	58,749		$	51,299		$	41,319		$	11,136		$	5,400
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	$	151,367		$	77,754		$	58,749		$	51,299		$	41,319		$	11,136		$	5,400
Weighted average diluted common shares outstanding	55,409,573			55,788,751			55,524,979			55,456,399			55,247,343			55,164,548			55,145,619
Earnings per common share - diluted	$	2.74		$	(12.40)		$	1.06		$	0.93		$	0.75		$	0.20		$	0.10
Adjusted earnings per common share - diluted	$	2.74		$	1.39		$	1.06		$	0.93		$	0.75		$	0.20		$	0.10
Pre-tax pre-provision income ("PTPP"):
Income (loss) before income taxes - GAAP	$	195,696		$	(716,597)		$	77,028		$	65,960		$	52,708		$	10,279		$	5,878
Add: Provision for credit losses - GAAP	(13,800)			101,539			(20,699)			(5,000)			11,899			16,853			21,641
Add: Change in fair value of FVO loans and related derivatives - GAAP	(2,480)			37,658			(4,110)			(42)			1,672			24,648			25,001
Add: Goodwill impairment - GAAP	—			742,352			—			—			—			—			—
Pre-tax pre-provision income	$	179,416		$	164,952		$	52,219		$	60,918		$	66,279		$	51,780		$	52,520
Tangible net income and return on average tangible common equity:
Net income (loss) - GAAP	$	151,367		$	(691,944)		$	58,749		$	51,299		$	41,319		$	11,136		$	5,400
Add: Amortization of intangible assets and COVID-19 related impairment of goodwill and certain intangible assets, net of tax	775			714,078			253			261			261			261			261
Tangible net income (loss)	$	152,142		$	22,134		$	59,002		$	51,560		$	41,580		$	11,397		$	5,661
Average common equity	$	1,081,752		$	1,663,420		$	1,113,791		$	1,049,388		$	1,082,077		$	1,174,996		$	1,163,724
Less: Average goodwill and other intangible assets	5,744			498,644			5,485			5,742			6,004			6,265			6,527
Average tangible common equity	$	1,076,008		$	1,164,776		$	1,108,306		$	1,043,646		$	1,076,073		$	1,168,731		$	1,157,197
Return on average common equity *	18.7		%	(55.6)		%	21.2		%	19.8		%	15.2		%	3.8		%	1.9		%
Return on average tangible common equity **	18.9		%	2.5		%	21.4		%	20.0		%	15.3		%	3.9		%	2.0		%
* 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.

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	At or for the nine months ended:						At or for the three months ended:
	June 30, 2021			June 30, 2020			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020
	(Dollars in thousands except share and per share amounts)
Adjusted net interest income and adjusted net interest margin (fully-tax equivalent basis), on non-ASC 310-30 loans:
Net interest income - GAAP	$	308,241		$	313,407		$	97,463		$	102,870		$	107,908		$	106,018		$	106,251
Add: Tax equivalent adjustment	4,770			4,638			1,595			1,577			1,598			1,508			1,601
Net interest income (FTE)	313,011			318,045			99,058			104,447			109,506			107,526			107,852
Add: Derivative interest expense	(9,692)			(5,180)			(3,117)			(3,182)			(3,393)			(3,541)			(3,040)
Adjusted net interest income (FTE)	$	303,319		$	312,865		$	95,941		$	101,265		$	106,113		$	103,985		$	104,812
Average interest-earning assets	$	12,112,699		$	11,763,523		$	12,299,046		$	12,073,497		$	11,965,555		$	12,184,093		$	12,156,505
Net interest margin (FTE) *	3.46		%	3.61		%	3.23		%	3.51		%	3.63		%	3.51		%	3.57		%
Adjusted net interest margin (FTE) **	3.35		%	3.55		%	3.13		%	3.40		%	3.52		%	3.40		%	3.47		%
* 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), on non-ASC 310-30 loans:
Interest income - GAAP	$	300,925		$	337,404		$	93,328		$	100,274		$	107,323		$	106,305		$	107,725
Add: Tax equivalent adjustment	4,770			4,638			1,595			1,577			1,598			1,508			1,601
Interest income (FTE)	305,695			342,042			94,923			101,851			108,921			107,813			109,326
Add: Derivative interest expense	(9,692)			(5,180)			(3,117)			(3,182)			(3,393)			(3,541)			(3,040)
Adjusted interest income (FTE)	$	296,003		$	336,862		$	91,806		$	98,669		$	105,528		$	104,272		$	106,286
Average non-ASC310-30 loans	$	9,028,273		$	9,675,039		$	8,500,919		$	9,016,221		$	9,567,679		$	9,977,591		$	9,974,802
Yield (FTE) *	4.53		%	4.72		%	4.48		%	4.58		%	4.52		%	4.30		%	4.41		%
Adjusted yield (FTE) **	4.38		%	4.65		%	4.33		%	4.44		%	4.38		%	4.16		%	4.29		%
* 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	$	358,953		$	317,374		$	116,834		$	120,063		$	122,056		$	102,068		$	94,568
Add: Tax equivalent adjustment	4,770			4,638			1,595			1,577			1,598			1,508			1,601
Total revenue (FTE)	$	363,723		$	322,012		$	118,429		$	121,640		$	123,654		$	103,576		$	96,169
Noninterest expense	$	177,057		$	932,432		$	60,505		$	59,103		$	57,449		$	74,936		$	67,049
Less: Amortization of intangible assets and COVID-19 related impairment of goodwill and certain intangible assets	775			743,484			253			261			261			261			278
Tangible noninterest expense	$	176,282		$	188,948		$	60,252		$	58,842		$	57,188		$	74,675		$	66,771
Efficiency ratio *	48.5		%	58.7		%	50.9		%	48.4		%	46.2		%	72.1		%	69.4		%
* 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	$	1,161,069		$	1,160,644		$	1,161,069		$	1,093,919		$	1,068,501		$	1,162,933		$	1,160,644
Less: Goodwill and other intangible assets	5,390			6,425			5,390			5,643			5,904			6,164			6,425
Tangible common equity	$	1,155,679		$	1,154,219		$	1,155,679		$	1,088,276		$	1,062,597		$	1,156,769		$	1,154,219
Total assets	$	13,070,229		$	12,934,328		$	13,070,229		$	13,013,739		$	12,814,383		$	12,604,439		$	12,934,328
Less: Goodwill and other intangible assets	5,390			6,425			5,390			5,643			5,904			6,164			6,425
Tangible assets	$	13,064,839		$	12,927,903		$	13,064,839		$	13,008,096		$	12,808,479		$	12,598,275		$	12,927,903
Tangible common equity to tangible assets	8.8		%	8.9		%	8.8		%	8.4		%	8.3		%	9.2		%	8.9		%

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	At or for the nine months ended:				At or for the three months ended:
	June 30, 2021		June 30, 2020		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020		June 30, 2020
	(Dollars in thousands except share and per share amounts)
Tangible book value per share:
Total stockholders' equity	$	1,161,069	$	1,160,644	$	1,161,069	$	1,093,919	$	1,068,501	$	1,162,933	$	1,160,644
Less: Goodwill and other intangible assets	5,390		6,425		5,390		5,643		5,904		6,164		6,425
Tangible common equity	$	1,155,679	$	1,154,219	$	1,155,679	$	1,088,276	$	1,062,597	$	1,156,769	$	1,154,219
Common shares outstanding	55,116,095		55,014,047		55,116,095		55,111,403		55,105,105		55,014,189		55,014,047
Book value per share - GAAP	$	21.07	$	21.10	$	21.07	$	19.85	$	19.39	$	21.14	$	21.10
Tangible book value per share	$	20.97	$	20.98	$	20.97	$	19.75	$	19.28	$	21.03	$	20.98

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.

Impact of Inflation and Changing Prices

Our financial statements included in this report have been prepared in accordance with GAAP, which requires us to measure financial position and operating results primarily in terms of historic dollars. Changes in the relative value of money due to inflation or recession generally are not considered. The primary effect of inflation on our operations is reflected in increased operating costs. In our management’s opinion, changes in interest rates affect the financial condition of a financial institution to a far greater degree than changes in the inflation rate. While interest rates are greatly influenced by changes in the inflation rate, they do not necessarily change at the same rate or in the same magnitude as the inflation rate. Interest rates are highly sensitive to many factors that are beyond our control, including changes in the expected rate of inflation, the influence of general and local economic conditions and the monetary and fiscal policies of the United States government, its agencies and various other governmental regulatory authorities.

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 securities, loans, allowance for credit losses, unfunded commitments and unfunded commitments reserve, and accrued interest receivable policies as a result of adopting ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs, in the current fiscal year. In the second quarter of fiscal year 2021, the Company purchased securities under agreements to resell which are collateralized by FHA/VA loans guaranteed by the U.S. government. See Note 1 for additional policy information. 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, 2020.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of June 30, 2021, 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, 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.

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Potential changes to our adjusted net interest income (i.e., GAAP net interest income plus derivative interest expense) in hypothetical rising and declining rate scenarios calculated as of June 30, 2021 are presented in the following table. The projections assume (1) immediate, parallel shifts downward of the yield curve of 100 basis points and immediate, parallel shifts upward of the yield curve of 100, 200, 300 and 400 basis points and (2) gradual shift downward of 100 basis points over 12 months and gradual shifts upward of 100, 200, 300 and 400 basis points over 12 months. In the current interest rate environment, a downward shift of the yield curve of 200, 300 and 400 basis points does not provide us with 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.

	Estimated Increase (Decrease) in Annualized Adjusted Net Interest Income for the Quarter Ended June 30, 2021
Change in Market Interest Rates as of June 30, 2021	Twelve Months Ending June 30, 2022		Twelve Months Ending June 30, 2023
Immediate Shifts
+400 basis points	20.70	%	28.20	%
+300 basis points	15.60	%	21.60	%
+200 basis points	10.40	%	14.70	%
+100 basis points	5.40	%	7.80	%
-100 basis points	(3.70)	%	(8.30)	%
Gradual Shifts
+400 basis points	5.90	%
+300 basis points	4.50	%
+200 basis points	3.10	%
+100 basis points	1.70	%
-100 basis points	(1.70)	%

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.

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.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are a party to various litigation and regulatory matters incidental to the conduct of our business. We establish reserves for such matters when potential losses become probable and can be reasonably estimated. We believe the ultimate resolution of existing litigation and regulatory matters will not have a material adverse effect on our financial condition, results of operations or cash flows. However, changes in circumstances or additional information could result in additional accruals or resolution of these matters in excess of established accruals, which could adversely affect our financial condition, results of operations or cash flows, potentially materially.

ITEM 1A. RISK FACTORS

There have been no material changes in 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, 2020.

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

Sales of Unregistered Equity Securities

None.

Purchases of Equity Securities

We did not repurchase any of our common stock during the third quarter of fiscal year 2021.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

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ITEM 6. EXHIBITS

Exhibit Number	Description
11.1	Statement regarding Computation of Per Share Earnings (included as Note 15 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
** Filed herewith
*** Furnished, not filed

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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: August 4, 2021	By:	/s/ Peter Chapman
	Name:	Peter Chapman
	Title:	Chief Financial Officer and Executive Vice President (Principal Financial Officer and Authorized Officer)

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