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Press Release

Great Western Bancorp, Inc. Announces Fiscal Year 2018 First Quarter Financial Results

Company Release - 1/25/2018 7:00 AM ET

Highlights for the First Quarter of Fiscal Year 2018 (all comparisons in this document refer to the fourth quarter of fiscal year 2017, except as noted)

  • First quarter net income was $29.2 million, or $0.49 per diluted share, compared to $37.7 million, or $0.64 per diluted share
  • Adjusted net income1, which excludes the nonrecurring charge to provision for income taxes of $13.6 million related to revaluation of the Company's deferred taxes, was $42.8 million or $0.72 per diluted share
  • Net interest margin and adjusted net interest margin1, 2 were 3.89% and 3.80%, respectively, decreases of 4 and 2 basis points, respectively, with each change impacted by a lower tax equivalent adjustment resulting from a lower tax rate
  • The efficiency ratio1 improved to 45.8% from 47.1%
  • Total loans increased $196.8 million, an annualized increase of 8.7%, while total deposits grew by $46.6 million
  • Net charge-offs recognized during the quarter were 0.18% of average total loans on an annualized basis, a reduction compared to each quarter of fiscal year 2017

SIOUX FALLS, S.D.--(BUSINESS WIRE)-- Great Western Bancorp, Inc. (NYSE: GWB) today reported net income of $29.2 million, or $0.49 per diluted share, for the first quarter of fiscal year 2018, compared to net income of $37.7 million, or $0.64 per diluted share, for the fourth quarter of fiscal year 2017. Adjusted net income1, which excludes the deferred taxes revaluation triggered by the Tax Cuts and Jobs Act of 2017, was $42.8 million or $0.72 per diluted share.

"We are pleased to report a strong underlying financial result for the quarter," said Ken Karels, Chairman, President and Chief Executive Officer. "Our loan growth was strong, we continued to manage costs well and overall credit quality trends remain favorable. As a result of corporate tax reform, we were required to adjust the value of our deferred taxes, but we already began to benefit from a lower statutory tax rate during the quarter and expect that we will earn back the amount of the deferred tax charge within this fiscal year. Finally, we were very pleased to announce earlier this month compensation and benefit increases for many of our employees and increased investments in other parts of our business directly resulting from tax reform and the savings we expect to incur."

Impact of the Tax Cuts and Jobs Act of 2017

The Tax Cuts and Jobs Act of 2017 significantly impacted the Company's financial results for the quarter and going forward. The three main impacts include:

  • A nonrecurring reduction in the carrying value of the Company's deferred taxes of $13.6 million, equating to $0.23, or 1.3%, of the Company's tangible book value per share1 and a reduction of approximately 15 basis points to the total capital ratio as of December 31, 2017 and $0.23 per diluted share for the quarter ended December 31, 2017;
  • A reduction in the statutory federal tax rate upon which the Company's net income before taxes is taxed beginning with the current fiscal year ending September 30, 2018. Because of the Company's fiscal year end, a blended statutory federal tax rate of 24.5% is applied to all net income before taxes generated during the current fiscal year and the overall effective tax rate for the fiscal year is expected to be approximately 26.0%. Compared to the previous statutory tax rate, the blended rate reduced the provision for income taxes by approximately $5.0 million for the quarter ended December 31, 2017. Beginning in fiscal year 2019, the Company's net income will be taxed at the 21.0% statutory federal tax rate; and
  • A reduction in the tax-related benefit generated by tax-advantaged assets. The tax equivalent adjustment to net interest income and net interest margin was $1.6 million for the current quarter, compared to $2.1 million in the prior quarter, on a consistent asset base. This change reduced net interest margin and adjusted net interest margin1, 2 in the current quarter by approximately 2 basis points and increased our efficiency ratio1 by a negligible amount.
 

1 This is a non-GAAP measure management believes is helpful to understanding trends in the business that may not be fully apparent based only on the most comparable GAAP measure. Further information on this measure and a reconciliation to the most comparable GAAP measure is provided at the end of this release.

 

2 All references to net interest income and net interest margin are presented on a fully-tax equivalent basis unless otherwise noted.

 

Net Interest Income and Net Interest Margin 2

Net interest income was $102.2 million for the first quarter of fiscal year 2018, an increase of $0.4 million, or 0.4%, compared to the prior quarter. The increase was primarily attributable to higher loan interest income driven by 1.2% growth in average loans outstanding between periods and a modest increase in investment portfolio income driven by rising interest rates, partially offset by higher interest expense associated with interest-bearing deposits and borrowings.

The consolidated income statements have been revised to correct an immaterial classification error in interest income and noninterest income related to credit card interchange income for the current quarter and all comparable periods presented. This change has no impact on net income, total revenue1, earnings per share, retained earnings, capital ratios or efficiency ratio1 for any period. Net interest margin and adjusted net interest margin1 are reduced by seven to eight basis points for each period presented, but there is no material impact to the trend for either of these metrics.

Net interest margin was 3.89% and 3.93%, respectively, for the quarters ended December 31, 2017 and September 30, 2017. Adjusted net interest margin1, which adjusts for the realized gain (loss) on interest rate swaps, was 3.80% and 3.82%, respectively, for the same periods. The yield on total loans decreased 2 basis points and the cost of deposits increased by 1 basis point. The reduction in the magnitude of the tax equivalent adjustment driven by a lower statutory tax rate reduced each metric by approximately 2 basis points.

Total loans outstanding were $9.17 billion as of December 31, 2017, an increase of $196.8 million, or 2.2%, for the quarter, and 8.7% on an annualized basis. The majority of the growth during the quarter occurred in the commercial real estate ("CRE") segment of the portfolio, which increased by $170.9 million, including strong growth in owner-occupied CRE and construction loans. Agriculture loans increased by $55.2 million, with approximately $20 million of that growth resulting from short-term advances required by many of our dairy customers for tax planning purposes that have already been repaid.

Total deposits grew $46.6 million, or 0.5%, during the quarter. Noninterest-bearing deposits were $1.93 billion, a 4.1% increase, for the quarter and interest-bearing deposits were $7.09 billion, a 0.4% decrease for the quarter. FHLB and other borrowings increased by $77.8 million, or 12.1%, as a result of loan growth during the quarter exceeding net deposit growth.

Provision for Loan and Lease Losses and Asset Quality

Provision for loan and lease losses was $4.6 million for the first quarter of fiscal year 2018, a decrease of $0.1 million, or 2.7%. Net charge-offs for the first quarter were $4.0 million, or 0.18% of average total loans on an annualized basis, with the majority of net charge-offs concentrated in the agriculture and commercial non-real estate segments of the loan portfolio. The ratio of allowance for loan and lease losses ("ALLL") to total loans was 0.70% at December 31, 2017, a decrease from 0.71%.

Included within total loans are approximately $980.1 million of loans for which management has elected the fair value option. These loans are excluded from the ALLL process, but management has estimated that approximately $6.2 million of the fair value adjustment for these loans relates to credit risk, or 0.07% of total loans. Finally, total purchase discount remaining on all acquired loans equates to 0.29% of total loans.

At December 31, 2017, loans graded "Watch" were $287.5 million, a decrease of $24.1 million, or 7.7%. Loans graded "Substandard" were $247.7 million, an increase of $14.8 million, or 6.4%. The decrease in "Watch" graded loans and the increase in "Substandard" graded loans was primarily driven by the deterioration of a small number of CRE relationships.

Nonaccrual loans were $147.3 million as of December 31, 2017, with $4.1 million of the balance covered by FDIC loss-sharing agreements. Total nonaccrual loans increased by $9.0 million during the quarter, primarily driven by one CRE loan relationship. Total other repossessed property balances were $10.5 million as of December 31, 2017, an increase of $1.5 million, or 16.7%.

As of mid-January, annual reviews have been completed on approximately 70% of agriculture loan relationships with maturity dates between November 1, 2017 and January 15, 2018. Growers' 2017 performance was broadly in line with expectations and risk rating changes are expected to be minimal with upgrades modestly exceeding downgrades.

Total credit-related charges decreased compared to the previous quarter. A summary of total credit-related charges incurred during the current and prior quarters is presented below:

GREAT WESTERN BANCORP, INC.    
Summary of Credit-Related Charges (Unaudited)
 
For the three months ended:
December 31, September 30,
Item Included within F/S Line Item(s): 2017 2017
(dollars in thousands)
Provision for loan and lease losses Provision for loan and lease losses $ 4,557 $ 4,685
Net other repossessed property charges Net loss on repossessed property and other related expenses 214 541
Reversal (recovery) of interest income on nonaccrual loans Interest income on loans 1,068 697
Loan fair value adjustment related to credit Net (decrease) increase in fair value of loans at fair value (1,038 ) 940
Total $ 4,801   $ 6,863
 

Noninterest Income

Noninterest income was $16.7 million for the first quarter of fiscal year 2018, an increase of $1.9 million, or 13.1%. The net effect of the change in the fair value of loans for which the Company has elected the fair value option and the net gain (loss), realized and unrealized, of the related derivatives was $2.2 million favorable, partially offset by a $0.6 million reduction in service charges and other fees primarily driven by the full quarter impact of the "Durbin Amendment" limit on debit card interchange income.

Noninterest Expense

Total noninterest expense was $54.9 million for the first quarter of fiscal year 2018, a decrease of $0.5 million, or 0.8%. Other noninterest expense, comprised of a number of miscellaneous items, decreased by $1.0 million and data processing decreased by $0.6 million as a result of lower communications cost. Salaries and employee benefits increased by $1.6 million, driven primarily by items related to fiscal year-end including vesting of share-based awards, incentive compensation and the related payroll taxes.

The efficiency ratio1 was 45.8% for the quarter, a decrease from 47.1%.

Provision for Income Taxes

The provision for income taxes for the first fiscal quarter ended December 31, 2017 was $28.6 million, reflecting an effective tax rate of 49.5% of income before income taxes, compared to an effective tax rate of 30.8%. Excluding the deferred taxes adjustment, the effective tax rate was 26.0%. See "Impact of the Tax Cuts and Jobs Act of 2017" above for discussion of material income tax items for the quarter.

Capital

Tier 1 and total capital ratios were 11.3% and 12.3%, respectively, as of December 31, 2017, compared to 11.4% and 12.5%, respectively. The common equity tier 1 capital ratio was 10.5% as of December 31, 2017 compared to 10.7%. The tier 1 leverage ratio was 10.3% as of December 31, 2017 and September 30, 2017. All regulatory capital ratios remain above regulatory minimums to be considered "well capitalized." The revaluation of the Company's deferred taxes reduced the total capital ratio by approximately 15 basis points.

On January 25, 2018, the Company’s Board of Directors declared a dividend of $0.20 per common share payable on February 21, 2018 to stockholders of record as of close of business on February 9, 2018. The aggregate dividend payment will be approximately $11.8 million.

Business Outlook

"We are very happy with the strong start to our fiscal year," added Karels. "We believe the recently enacted tax reform will generate meaningful savings that we can use to invest in our people and our business and materially increase our return profile for investors. Furthermore, we are hopeful that we will see regulatory reform in 2018 that will significantly reduce the compliance burden on Great Western Bank and many of our competitors and allow us to devote more energy and resources to continuing to grow this high-performing organization."

Conference Call

Great Western Bancorp, Inc. will host a conference call to discuss its financial results for the first quarter of fiscal year 2018 on Thursday, January 25, 2018 at 7:30 AM (CT). The call can be accessed by dialing (855) 238-8837 approximately 10 minutes prior to the start time. Please ask to be joined into the Great Western Bancorp, Inc. (GWB) call. International callers should dial (412) 542-4114. The call will also be broadcast live over the Internet and can be accessed in the Investor Relations section of Great Western’s website at www.greatwesternbank.com. A replay will be available beginning one hour following the conference call and ending on February 8, 2018. To access the replay, dial (877) 344-7529 (U.S.) and use conference ID 10115205. International callers should dial (412) 317-0088 and enter the same conference ID number.

About Great Western Bancorp, Inc.

Great Western Bancorp, Inc. is the holding company for Great Western Bank, a full-service regional bank focused on relationship-based business and agribusiness banking. Great Western Bank offers small and mid-sized businesses a focused suite of financial products and a range of deposit and loan products to retail customers through several channels, including the branch network, online banking system, mobile banking applications and customer care centers. The bank services its customers through more than 170 branches in nine states: Arizona, Colorado, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota. To learn more about Great Western Bank visit www.greatwesternbank.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements about Great Western Bancorp, Inc.’s expectations, beliefs, plans, strategies, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. 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. In particular, the statements included in this press release concerning Great Western Bancorp, Inc.’s expected performance and strategy, the effects of tax reform, the outlook for its agricultural lending segment and the interest rate environment are not historical facts and are forward-looking. Accordingly, the forward-looking statements in this press release are only predictions and involve estimates, known and unknown risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed. All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that actual results will not differ materially from expectations, and, therefore, you are cautioned not to place undue reliance on such statements. Any forward-looking statements are qualified in their entirety by reference to the factors discussed in the sections titled “Item 1A. Risk Factors” and "Cautionary Note Regarding Forward-Looking Statements" in Great Western Bancorp, Inc.’s Annual Report on Form 10-K for the fiscal year ended September 30, 2017. Further, any forward-looking statement speaks only as of the date on which it is made, and Great Western Bancorp, Inc. undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

GREAT WESTERN BANCORP, INC.          
Consolidated Financial Data (Unaudited)
 
At or for the three months ended:
December 31, September 30, June 30, March 31, December 31,
2017 2017 2017 2017 2016
(dollars in thousands, except share and per share amounts)
Operating Data:
Interest and dividend income (FTE) $ 116,519 $ 115,185 $ 110,713 $ 108,420 $ 108,797
Interest expense 14,332 13,391 11,671 10,494 9,764
Noninterest income 16,674 14,740 17,327 15,489 15,658
Noninterest expense 54,868 55,332 54,922 53,852 52,537
Provision for loan and lease losses 4,557 4,685 5,796 4,009 7,049
Net income 29,230 37,662 35,060 35,162 36,903
Adjusted net income 1 $ 42,816 $ 37,662 $ 35,060 $ 35,162 $ 37,343
Common shares outstanding 58,896,189 58,834,066 58,761,597 58,760,517 58,755,989
Weighted average diluted common shares outstanding 59,087,729 58,914,144 59,130,632 59,073,669 58,991,905
Earnings per common share - diluted $ 0.49 $ 0.64 $ 0.59 $ 0.60 $ 0.63
Adjusted earnings per common share - diluted 1 $ 0.72 $ 0.64 $ 0.59 $ 0.60 $ 0.63
 
Performance Ratios:
Net interest margin (FTE) 1 2 3.89 % 3.93 % 3.92 % 3.91 % 3.82 %
Adjusted net interest margin (FTE) 1 2 3.80 % 3.82 % 3.79 % 3.76 % 3.65 %
Return on average total assets 2 1.00 % 1.30 % 1.25 % 1.26 % 1.28 %
Return on average common equity 2 6.6 % 8.6 % 8.2 % 8.5 % 8.8 %
Return on average tangible common equity 1 2 11.6 % 15.2 % 14.8 % 15.4 % 16.3 %
Efficiency ratio 1 45.8 % 47.1 % 46.7 % 47.0 % 45.1 %
 
Capital:
Tier 1 capital ratio 11.3 % 11.4 % 11.5 % 11.6 % 11.2 %
Total capital ratio 12.3 % 12.5 % 12.6 % 12.7 % 12.3 %
Tier 1 leverage ratio 10.3 % 10.3 % 10.3 % 10.0 % 9.7 %
Common equity tier 1 ratio 10.5 % 10.7 % 10.7 % 10.8 % 10.4 %
Tangible common equity / tangible assets 1 9.2 % 9.2 % 9.2 % 9.0 % 8.7 %
Book value per share - GAAP $ 30.02 $ 29.83 $ 29.49 $ 29.05 $ 28.57
Tangible book value per share 1 $ 17.32 $ 17.11 $ 16.75 $ 16.29 $ 15.81
 
Asset Quality:
Nonaccrual loans $ 147,325 $ 138,312 $ 123,641 $ 127,675 $ 124,178
Other repossessed property $ 10,486 $ 8,985 $ 9,051 $ 6,994 $ 8,093
Nonaccrual loans / total loans 1.61 % 1.54 % 1.41 % 1.47 % 1.41 %
Net charge-offs (recoveries) $ 4,037 $ 5,394 $ 4,267 $ 8,091 $ 4,924
Net charge-offs (recoveries) / average total loans 2 0.18 % 0.24 % 0.20 % 0.38 % 0.22 %
Allowance for loan and lease losses / total loans 0.70 % 0.71 % 0.73 % 0.72 % 0.76 %
Watch-rated loans $ 287,468 $ 311,611 $ 298,963 $ 324,457 $ 334,673

 

1 This is a non-GAAP financial measure management believes is helpful to interpreting our financial results. See the tables at the end of this document for the calculation of the measure and reconciliation to the most comparable GAAP measure.

2 Annualized for all partial-year periods.

GREAT WESTERN BANCORP, INC.
Consolidated Income Statement (Unaudited)
 
At or for the three months ended:
December 31,   September 30,   June 30,   March 31,   December 31,
2017 2017 2017 2017 2016
(dollars in thousands)
Interest and dividend income
Loans $ 107,680 $ 106,277 $ 101,593 $ 99,481 $ 99,932
Taxable securities 6,494 6,092 6,238 6,055 5,878
Nontaxable securities 260 268 269 241 199
Dividends on securities 289 232 296 242 300
Federal funds sold and other 231   194   163   219   346  
Total interest and dividend income 114,954 113,063 108,559 106,238 106,655
Interest expense
Deposits 10,998 10,439 9,478 7,829 7,290
Securities sold under agreements to repurchase 95 85 86 98 115
FHLB advances and other borrowings 2,069 1,702 994 1,469 1,271
Subordinated debentures and subordinated notes payable 1,170   1,165   1,113   1,098   1,088  
Total interest expense 14,332   13,391   11,671   10,494   9,764  
Net interest income 100,622 99,672 96,888 95,744 96,891
Provision for loan and lease losses 4,557   4,685   5,796   4,009   7,049  
Net interest income after provision for loan and lease losses 96,065   94,987   91,092   91,735   89,842  
Noninterest income
Service charges and other fees 13,178 13,742 14,572 13,574 13,837
Wealth management fees 2,185 2,002 2,433 2,429 2,254
Mortgage banking income, net 1,660 1,798 1,828 1,640 2,662
Net (loss) gain on sale of securities (1 ) 32 44
Net (decrease) increase in fair value of loans at fair value (8,665 ) (2,073 ) 6,060 (5,216 ) (64,001 )
Net realized and unrealized gain (loss) on derivatives 7,227 (1,581 ) (9,088 ) 1,592 58,976
Other 1,090   820   1,522   1,426   1,930  
Total noninterest income 16,674 14,740 17,327 15,489 15,658
Noninterest expense
Salaries and employee benefits 32,868 31,263 32,868 32,370 31,634
Data processing 5,896 6,494 6,378 5,965 5,677
Occupancy expenses 4,002 4,033 4,057 4,355 4,024
Professional fees 4,240 4,503 4,141 3,559 2,835
Communication expenses 988 830 992 914 1,040
Advertising 1,059 954 1,059 995 975
Equipment expenses 846 973 809 768 798
Net loss on repossessed property and other related expenses 214 541 152 397 658
Amortization of core deposits and other intangibles 426 430 538 550 839
Acquisition expenses 710
Other 4,329   5,311   3,928   3,979   3,347  
Total noninterest expense 54,868   55,332   54,922   53,852   52,537  
Income before income taxes 57,871 54,395 53,497 53,372 52,963
Provision for income taxes 28,641   16,733   18,437   18,210   16,060  
Net income $ 29,230   $ 37,662   $ 35,060   $ 35,162   $ 36,903  
 
GREAT WESTERN BANCORP, INC.
Summarized Consolidated Balance Sheet (Unaudited)
 
As of
December 31,   September 30,   June 30,   March 31,   December 31,
2017 2017 2017 2017 2016
(dollars in thousands)
Assets
Cash and cash equivalents $ 297,596 $ 360,396 $ 327,901 $ 335,929 $ 270,168
Securities 1,366,641 1,367,960 1,366,442 1,350,893 1,371,558
Total loans 9,165,373 8,968,553 8,791,852 8,697,426 8,779,107
Allowance for loan and lease losses (64,023 ) (63,503 ) (64,214 ) (62,685 ) (66,767 )
Loans, net 9,101,350 8,905,050 8,727,638 8,634,741 8,712,340
Goodwill 739,023 739,023 739,023 739,023 739,023
Other assets 301,971   317,582   305,180   296,255   329,528  
Total assets $ 11,806,581   $ 11,690,011   $ 11,466,184   $ 11,356,841   $ 11,422,617  
 
Liabilities and stockholders' equity
Noninterest-bearing deposits $ 1,932,080 $ 1,856,126 $ 1,915,560 $ 2,026,627 $ 1,954,881
Interest-bearing deposits 7,092,105   7,121,487   7,043,542   7,065,291   6,751,366  
Total deposits 9,024,185 8,977,613 8,959,102 9,091,918 8,706,247
Securities sold under agreements to repurchase 116,884 132,636 123,851 124,472 142,741
FHLB advances and other borrowings 721,009 643,214 471,719 264,624 711,029
Other liabilities 176,630   181,548   178,529   168,966   183,962  
Total liabilities 10,038,708 9,935,011 9,733,201 9,649,980 9,743,979
Stockholders' equity 1,767,873   1,755,000   1,732,983   1,706,861   1,678,638  
Total liabilities and stockholders' equity $ 11,806,581   $ 11,690,011   $ 11,466,184   $ 11,356,841   $ 11,422,617  
 
GREAT WESTERN BANCORP, INC.        
Loan Portfolio Summary (Unaudited)
 
As of Fiscal year-to-date:
December 31, September 30, Change Change
2017 2017 ($) (%)
(dollars in thousands)
Construction and development $ 622,985 $ 538,736 $ 84,249 15.6 %
Owner-occupied CRE 1,317,585 1,219,523 98,062 8.0 %
Non-owner-occupied CRE 2,035,987 2,025,326 10,661 0.5 %
Multifamily residential real estate   319,139     341,220     (22,081 ) (6.5 )%
Commercial real estate 4,295,696 4,124,805 170,891 4.1 %
Agriculture 2,177,383 2,122,138 55,245 2.6 %
Commercial non-real estate 1,695,731 1,718,914 (23,183 ) (1.3 )%
Residential real estate 924,439 932,892 (8,453 ) (0.9 )%
Consumer 62,872 66,559 (3,687 ) (5.5 )%

Other 1

  45,805     43,207     2,598   6.0 %
Total unpaid principal balance 9,201,926 9,008,515 193,411 2.1 %
Less: Unamortized discount on acquired loans and unearned net deferred fees and costs and loans in process   (36,553 )   (39,962 )   3,409   8.5 %
Total loans $ 9,165,373   $ 8,968,553   $ 196,820   2.2 %

 

1 Other loans primarily include consumer and commercial credit cards, customer deposit account overdrafts, and lease receivables.

GREAT WESTERN BANCORP, INC.
Net Interest Margin (FTE) (Unaudited)
           
For the three months ended:
December 31, 2017   September 30, 2017 December 31, 2016
  Interest   Yield / Interest Yield / Interest Yield /
Average Balance (FTE) Cost (1) Average Balance (FTE) Cost (1) Average Balance (FTE) Cost (1)
(dollars in thousands)
Assets
Interest-bearing bank deposits $ 65,935 $ 231 1.39 % $ 55,834 $ 194 1.38 % $ 266,704 $ 346 0.51 %
Investment securities 1,416,179 7,043 1.97 % 1,403,240 6,592 1.86 % 1,377,459 6,377 1.84 %
Non ASC 310-30 loans, net 2 8,840,929 106,500 4.78 % 8,728,514 105,120 4.78 % 8,515,947 99,730 4.65 %
ASC 310-30 loans, net   89,839     2,745   12.12 %   95,813     3,279   13.58 %   126,174     2,344   7.37 %
Loans, net   8,930,768     109,245   4.85 %   8,824,327     108,399   4.87 %   8,642,121     102,074   4.69 %
Total interest-earning assets 10,412,882 116,519 4.44 % 10,283,401 115,185 4.44 % 10,286,284 108,797 4.20 %
Noninterest-earning assets   1,176,658     1,166,931     1,152,013  
Total assets $ 11,589,540   $ 116,519   3.99 % $ 11,450,332   $ 115,185   3.99 % $ 11,438,297   $ 108,797   3.77 %
 
Liabilities and Stockholders' Equity
Noninterest-bearing deposits $ 1,844,490 $ 1,793,321 $ 1,792,060
NOW, money market and savings deposits 5,887,195 $ 8,291 0.56 % 5,817,665 $ 7,909 0.54 % 5,548,112 $ 5,129 0.37 %
Time deposits   1,267,300     2,707   0.85 %   1,280,226     2,530   0.78 %   1,348,119     2,161   0.64 %
Total deposits 8,998,985 10,998 0.48 % 8,891,212 10,439 0.47 % 8,688,291 7,290 0.33 %
Securities sold under agreements to repurchase 125,060 95 0.30 % 116,004 85 0.29 % 136,405 115 0.33 %
FHLB advances and other borrowings 519,575 2,069 1.58 % 509,959 1,702 1.32 % 716,953 1,271 0.70 %
Subordinated debentures and subordinated notes payable   108,316     1,170   4.28 %   108,275     1,165   4.27 %   110,962     1,088   3.89 %
Total borrowings   752,951     3,334   1.76 %   734,238     2,952   1.60 %   964,320     2,474   1.02 %
Total interest-bearing liabilities 9,751,936 $ 14,332 0.58 % 9,625,450 $ 13,391 0.55 % 9,652,611 $ 9,764 0.40 %
Noninterest-bearing liabilities 76,477 84,453 119,443
Stockholders' equity   1,761,127     1,740,429     1,666,243  
Total liabilities and stockholders' equity $ 11,589,540   $ 11,450,332   $ 11,438,297  
Net interest spread 3.41 % 3.44 % 3.37 %
Net interest income and net interest margin (FTE) $ 102,187   3.89 % $ 101,794   3.93 % $ 99,033   3.82 %
Less: Tax equivalent adjustment   1,565     2,122     2,142  
Net interest income and net interest margin - ties to Statements of Comprehensive Income $ 100,622   3.83 % $ 99,672   3.85 % $ 96,891   3.74 %

 

1 Annualized for all partial-year periods.

2 Interest income includes $0.6 million and $1.4 million for the first quarter of fiscal year 2018 and 2017, respectively, resulting from accretion of purchase accounting discount associated with acquired loans.

Non-GAAP Measures and Reconciliation

We rely on certain non-GAAP measures in making financial and operational decisions about our business. We believe that each of the non-GAAP measures presented is helpful in highlighting trends in our business, financial condition and results of operations which might not otherwise be apparent when relying solely on our financial results calculated in accordance with U.S. generally accepted accounting principles, or GAAP. We disclose net interest income and related ratios and analysis on a taxable-equivalent basis, which may also be considered non-GAAP financial measures. We believe this presentation to be the preferred industry measurement of net interest income as it provides a relevant comparison of net interest income arising from taxable and tax-exempt sources. In addition, certain performance measures, including the efficiency ratio and net interest margin utilize net interest income on a taxable-equivalent basis.

In particular, we evaluate our profitability and performance based on our adjusted net income, adjusted earnings per common share, tangible net income and return on average tangible common equity. Our adjusted net income and adjusted earnings per common share exclude the after-tax effect of items with a significant impact to net income that we do not believe to be recurring in nature, (e.g., one-time acquisition expenses as well as the effect of revaluation of deferred taxes). Our tangible net income and return on average tangible common equity exclude the effects of amortization expense relating to intangible assets and related tax effects from the acquisition of us by National Australia Bank Limited ("NAB") and our acquisitions of other institutions. We believe these measures help highlight trends associated with our financial condition and results of operations by providing net income and return information excluding significant nonrecurring items (for adjusted net income and adjusted earnings per share) and based on our cash payments and receipts during the applicable period (for tangible net income and return on average tangible common equity).

We also evaluate our profitability and performance based on our adjusted net interest income, adjusted net interest margin, adjusted interest income on non ASC 310-30 loans and adjusted yield on non ASC 310-30 loans. We adjust each of these four measures to include the current realized gain (loss) of derivatives we use to manage interest rate risk on certain of our loans, which we believe economically offsets the interest income earned on the loans. Similarly, we evaluate our operational efficiency based on our efficiency ratio, which excludes the effect of amortization of core deposit and other intangibles (a non-cash expense item) and includes the tax benefit associated with our tax-advantaged loans.

We evaluate our financial condition based on the ratio of our tangible common equity to our tangible assets and the ratio of our tangible common equity to common shares outstanding. Our calculation of this ratio excludes the effect of our goodwill and other intangible assets. We believe this measure is helpful in highlighting the common equity component of our capital and because of its focus by federal bank regulators when reviewing the health and strength of financial institutions in recent years and when considering regulatory approvals for certain actions, including capital actions. We also believe the ratio of our tangible common equity to common shares outstanding is helpful in understanding our stockholders’ relative ownership position as we undertake various actions to issue and retire common shares outstanding.

Reconciliations for each of these non-GAAP financial measures to the closest GAAP financial measures are included in the tables below. Each of the non-GAAP measures presented should be considered in context with our GAAP financial results included in this release.

GREAT WESTERN BANCORP, INC.
Reconciliation of Non-GAAP Measures (Unaudited)        
 
At or for the three months ended:
December 31, September 30, June 30, March 31, December 31,
2017 2017 2017 2017 2016
(dollars in thousands except share and per share amounts)
Adjusted net income and adjusted earnings per common share:
Net income - GAAP $ 29,230 $ 37,662 $ 35,060 $ 35,162 $ 36,903
Add: Acquisition expenses, net of tax 440
Add: Deferred taxes revaluation 13,586          
Adjusted net income $ 42,816   $ 37,662   $ 35,060   $ 35,162   $ 37,343  
 
Weighted average diluted common shares outstanding 59,087,729 58,914,144 59,130,632 59,073,669 58,991,905
Earnings per common share - diluted $ 0.49 $ 0.64 $ 0.59 $ 0.60 $ 0.63
Adjusted earnings per common share - diluted $ 0.72 $ 0.64 $ 0.59 $ 0.60 $ 0.63
 
Tangible net income and return on average tangible common equity:
Net income - GAAP $ 29,230 $ 37,662 $ 35,060 $ 35,162 $ 36,903
Add: Amortization of intangible assets, net of tax 376   380   488   500   676  
Tangible net income $ 29,606   $ 38,042   $ 35,548   $ 35,662   $ 37,579  
 
Average common equity $ 1,761,127 $ 1,740,429 $ 1,715,460 $ 1,686,770 $ 1,666,243
Less: Average goodwill and other intangible assets 748,144   748,571   749,074   749,638   750,290  
Average tangible common equity $ 1,012,983   $ 991,858   $ 966,386   $ 937,132   $ 915,953  
Return on average common equity * 6.6 % 8.6 % 8.2 % 8.5 % 8.8 %
Return on average tangible common equity ** 11.6 % 15.2 % 14.8 % 15.4 % 16.3 %
 
* Calculated as net income - GAAP divided by average common equity. Annualized for partial-year periods.
** Calculated as tangible net income divided by average tangible common equity. Annualized for partial-year periods.
 
Adjusted net interest income and adjusted net interest margin (fully-tax equivalent basis):
Net interest income - GAAP $ 100,622 $ 99,672 $ 96,888 $ 95,744 $ 96,891
Add: Tax equivalent adjustment 1,565   2,122   2,154   2,182   2,142  
Net interest income (FTE) 102,187 101,794 99,042 97,926 99,033
Add: Current realized derivative gain (loss) (2,476 ) (2,714 ) (3,320 ) (3,875 ) (4,486 )
Adjusted net interest income (FTE) $ 99,711   $ 99,080   $ 95,722   $ 94,051   $ 94,547  
 
Average interest-earning assets $ 10,412,882 $ 10,283,401 $ 10,124,404 $ 10,144,875 $ 10,286,284
Net interest margin (FTE) * 3.89 % 3.93 % 3.92 % 3.91 % 3.82 %
Adjusted net interest margin (FTE) ** 3.80 % 3.82 % 3.79 % 3.76 % 3.65 %
 
* Calculated as net interest income (FTE) divided by average interest earning assets. Annualized for partial-year periods.
** Calculated as adjusted net interest income (FTE) divided by average interest earning assets. Annualized for partial-year periods.
 
Adjusted interest income and adjusted yield (fully-tax equivalent basis), on non ASC 310-30 loans:
Interest income - GAAP $ 104,935 $ 102,998 $ 98,724 $ 97,170 $ 97,588
Add: Tax equivalent adjustment 1,565   2,122   2,154   2,182   2,142  
Interest income (FTE) 106,500 105,120 100,878 99,352 99,730
Add: Current realized derivative gain (loss) (2,476 ) (2,714 ) (3,320 ) (3,875 ) (4,486 )
Adjusted interest income (FTE) $ 104,024   $ 102,406   $ 97,558   $ 95,477   $ 95,244  
 
Average non ASC 310-30 loans $ 8,840,929 $ 8,728,514 $ 8,550,349 $ 8,531,652 $ 8,515,947
Yield (FTE) * 4.78 % 4.78 % 4.73 % 4.72 % 4.65 %
Adjusted yield (FTE) ** 4.67 % 4.65 % 4.58 % 4.54 % 4.44 %
 
* 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 $ 117,296 $ 114,412 $ 114,215 $ 111,233 $ 112,549
Add: Tax equivalent adjustment 1,565   2,122   2,154   2,182   2,142  
Total revenue (FTE) $ 118,861   $ 116,534   $ 116,369   $ 113,415   $ 114,691  
 
Noninterest expense $ 54,868 $ 55,332 $ 54,922 $ 53,852 $ 52,537
Less: Amortization of intangible assets 426   430   538   550   839  
Tangible noninterest expense $ 54,442   $ 54,902   $ 54,384   $ 53,302   $ 51,698  
Efficiency ratio * 45.8 % 47.1 % 46.7 % 47.0 % 45.1 %
 
* 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 $ 1,767,873 $ 1,755,000 $ 1,732,983 $ 1,706,861 $ 1,678,638
Less: Goodwill and other intangible assets 747,971   748,397   748,828   749,366   749,916  
Tangible common equity $ 1,019,902   $ 1,006,603   $ 984,155   $ 957,495   $ 928,722  
 
Total assets $ 11,806,581 $ 11,690,011 $ 11,466,184 $ 11,356,841 $ 11,422,617
Less: Goodwill and other intangible assets 747,971   748,397   748,828   749,366   749,916  
Tangible assets $ 11,058,610   $ 10,941,614   $ 10,717,356   $ 10,607,475   $ 10,672,701  
Tangible common equity to tangible assets 9.2 % 9.2 % 9.2 % 9.0 % 8.7 %
 
Tangible book value per share:
Total stockholders' equity $ 1,767,873 $ 1,755,000 $ 1,732,983 $ 1,706,861 $ 1,678,638
Less: Goodwill and other intangible assets 747,971   748,397   748,828   749,366   749,916  
Tangible common equity $ 1,019,902   $ 1,006,603   $ 984,155   $ 957,495   $ 928,722  
 
Common shares outstanding 58,896,189 58,834,066 58,761,597 58,760,517 58,755,989
Book value per share - GAAP $ 30.02 $ 29.83 $ 29.49 $ 29.05 $ 28.57
Tangible book value per share $ 17.32 $ 17.11 $ 16.75 $ 16.29 $ 15.81

Great Western Bancorp, Inc.
Media Contact:
Ann Nachtigal, 605-988-9217
ann.nachtigal@greatwesternbank.com
or
Investor Relations Contact:
David Hinderaker, 605-988-9253
david.hinderaker@greatwesternbank.com

Source: Great Western Bancorp, Inc.