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Press Release

Great Western Bancorp, Inc. Announces Fiscal Year 2017 Second Quarter Financial Results; Raises Dividend

Company Release - 4/27/2017 7:05 AM ET

SIOUX FALLS, S.D.--(BUSINESS WIRE)-- Great Western Bancorp, Inc. (NYSE: GWB):

Highlights for the Second Quarter of Fiscal Year 2017

  • Second quarter net income was $35.2 million, or $0.60 per diluted share, a 14.6% increase in net income compared to $30.7 million, or $0.55 per diluted share, for the same quarter of fiscal year 2016
  • Net interest margin and adjusted net interest margin1 were 3.98% and 3.83%, respectively, increases of 9 and 12 basis points, respectively, compared to the quarter ended December 31, 2016
  • The Company's Board of Directors declared a quarterly dividend of $0.20 per share, an increase of 18% compared to the most recent quarterly dividend
  • Key asset quality metrics of classified loans, nonaccrual loans and other real estate owned ("OREO") generally remained stable over the quarter, reinforcing management's view that stress in the agriculture loan portfolio is expected to remain manageable
  • Total loans decreased $81.7 million compared to the quarter ended December 31, 2016, primarily as a result of reductions in agriculture loan balances, while deposit growth was $385.7 million, or 4.4%
  • Costs remained well managed with an efficiency ratio1 of 47.0%

Great Western Bancorp, Inc. (NYSE: GWB) today reported net income of $35.2 million, or $0.60 per diluted share, for the second quarter of fiscal year 2017, compared to net income of $30.7 million, or $0.55 per diluted share, for the same quarter of fiscal year 2016. Fiscal year-to-date net income of $72.1 million represents an increase of 17.9% compared to the same period in fiscal year 2016.

"We are proud to deliver another robust quarter of net income and are happy to announce an increase to our quarterly dividend which reflects our strong capital generation," said Ken Karels, Chairman, President and Chief Executive Officer. "We have made significant progress managing through the annual renewal process with many of our farm and ranch customers and continue to feel comfortable with that portion of our business."

Net Interest Income and Net Interest Margin2

Net interest income was $99.6 million for the second quarter of fiscal year 2017, an increase of $11.5 million, or 13.0%, compared to the same quarter in fiscal year 2016. The increase was primarily attributable to higher loan interest income driven by 15.8% growth in average loans outstanding between periods, including both organic growth and inorganic growth related to the 2016 acquisition of HF Financial Corp. Higher loan interest income was partially offset by a $2.5 million increase in interest expense related to deposits and FHLB borrowings.

Net interest margin was 3.98%, 3.89% and 3.99%, respectively, for the quarters ended March 31, 2017, December 31, 2016 and March 31, 2016. Adjusted net interest margin1, which adjusts for the realized gain (loss) on interest rate swaps, was 3.83%, 3.71% and 3.75%, respectively, for the same periods. Net interest margin and adjusted net interest margin1 increased by 9 basis points and 12 basis points, respectively, compared to the quarter ended December 31, 2016. The yield on interest-earning assets increased by 14 basis points over the quarter, while the cost of interest-bearing liabilities only increased by 5 basis points over the same period. Recent benchmark interest rate increases and a change in asset mix each contributed to the increased yield on interest-earning assets as loan yields increased by 7 basis points, primarily as a result of increasing rates on variable and adjustable rate loans, and lower yielding interest-bearing bank deposits comprised a much smaller portion of total interest-earning assets. Meanwhile, the total cost of deposits only increased by 3 basis points over the same period. A $0.6 million reduction in the cost of interest rate swaps compared to the prior quarter is the driver of the more pronounced increase in adjusted net interest margin1 compared to net interest margin.

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.

Balance Sheet

Total loans outstanding were $81.7 million lower compared to December 31, 2016. Commercial and industrial ("C&I") loans grew by $46.2 million, more than offset by a $92.0 million net reduction in agricultural loans.

Total deposits grew $385.7 million, or 4.4%, during the quarter, bringing fiscal year-to-date growth to $487.1 million, or 5.7%. Deposit growth during the quarter included $71.7 million of noninterest-bearing deposit growth and $313.9 million of interest-bearing deposit growth. The net deposit inflows during the quarter were predominantly utilized to fund a significant reduction in FHLB advances and other borrowings outstanding.

Provision for Loan and Lease Losses and Asset Quality

Provision for loan and lease losses was $4.0 million for the quarter ended March 31, 2017, compared to $2.6 million for the same quarter of fiscal year 2016. Provision for loan losses related to originated loans was $5.1 million, partially offset by a $1.1 million recoupment of provision for loan losses related to acquired loans resulting from the regular quarterly revaluation of those loans. Net charge-offs for the quarter were $8.1 million, or 0.38% of average total loans on an annualized basis. For the comparable period in fiscal year 2016, net charge-offs were $1.9 million, or 0.10%. The higher level of net charge-offs recognized during the quarter were concentrated in the agriculture, C&I and commercial real estate segments of the loan portfolio. The majority of the increase was driven by charge-offs related to loans that had been identified as potential problem loans prior to December 31, 2016 and for which a specific allowance for loan and lease loss had previously been recorded.

The ratio of allowance for loan and lease losses ("ALLL") to total loans was 0.72% at March 31, 2017, a reduction from 0.74% at September 30, 2016 and a reduction from 0.82% at March 31, 2016. The higher level of net charge-offs recognized during the quarter was the primary driver of the reduction in the ratio ALLL to total loans.

Included within total loans are approximately $1.06 billion 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 $7.7 million of the fair value adjustment for these loans relates to credit risk, translating to an additional 0.09% of total loans. Finally, total purchase discount remaining on all acquired loans equates to 0.40% of total loans.

Key asset quality metrics of classified loans, nonaccrual loans and OREO have remained relatively stable compared to September 30, 2016 and December 31, 2016. At March 31, 2017, loans graded "Watch" were $324.5 million, a decrease of $10.2 million, or 3.1%, compared to December 31, 2016, and a decrease of $9.1 million, or 2.7%, compared to March 31, 2016. Loans graded "Substandard" were $263.7 million, an increase of $14.2 million, or 5.7%, compared to December 31, 2016, and an increase of $41.6 million, or 18.7%, compared to March 31, 2016.

Nonaccrual loans were $127.7 million as of March 31, 2017, with $3.9 million of the balance covered by FDIC loss-sharing agreements. Total nonaccrual loans increased by $3.5 million during the quarter and increased by $72.7 million compared to same quarter in fiscal year 2016. The year-over-year increase was primarily driven by the deterioration of originated loans, which predominantly occurred in the quarter ended June 30, 2016. Total OREO balances were $7.0 million as of March 31, 2017, a decrease of $1.1 million, or 13.6%, compared to prior quarter and a decrease of $5.2 million, or 42.7%, compared to March 31, 2016.

Total credit-related charges decreased compared to the previous quarter and increased compared to the same quarter in fiscal year 2016. A summary of total credit-related charges incurred during the current, prior and comparable quarters and current and prior six-month periods is presented below:

GREAT WESTERN BANCORP, INC.
Summary of Credit-Related Charges (Unaudited)
           

At or for the six months ended:

For the three months ended:

Included within

March 31, March 31, March 31,

December 31,

March 31,
Item

F/S Line Item(s):

2017 2016 2017

2016

2016
(dollars in thousands)
Provision for loan and lease losses Provision for loan and lease losses $ 11,058 $ 6,520 $ 4,009 $ 7,049 $ 2,631
Net OREO charges Net loss on repossessed property and other related expenses 1,056 100 397 658 210
Recovery of interest income on nonaccrual loans Interest income on loans (99 ) (185 ) (25 ) (74 ) (45 )
Loan fair value adjustment related to credit Net increase (decrease) in fair value of loans at fair value 289   (427 ) (251 ) 539   (237 )
Total $ 12,304   $ 6,008   $ 4,130   $ 8,172   $ 2,559  
 

Noninterest Income

Noninterest income was $13.8 million for the second quarter ended March 31, 2017, an increase of $4.8 million, or 53.7%, compared to the second quarter of fiscal year 2016. The increase was primarily driven by a $1.6 million, or 15.5%, increase in service charges and other fees, which includes a $1.2 million increase in debit card interchange income and a modest increase in commercial deposit service charges. Management estimates that the impact of recording higher debit card interchange income (i.e., "Durbin Amendment") was $2.3 million for the quarter, compared to an estimate of $1.2 million for the same quarter of fiscal year 2016, which reflected only a partial quarter impact. The higher allowable interchange rates are effective through June 30, 2017. Wealth management income increased by $0.8 million and other income increased by $0.7 million.

Also included within noninterest income are the changes in fair value of certain loans for which the Company has elected the fair value option and the net gain (loss), realized and unrealized, of the related derivatives used to manage the interest rate risk on these loans. On a net basis, these two components of noninterest income accounted for an increase of $1.3 million compared to the same quarter of fiscal year 2016, which was almost entirely driven by a $1.3 million reduction in the current cost of interest rate swaps driven by changes in the interest rate environment.

Noninterest Expense

Total noninterest expense was $53.9 million for the second fiscal quarter ended March 31, 2017, an increase of $9.0 million, or 20.1%, compared to the same quarter in fiscal year 2016. The increase was primarily driven by an increase in salaries and employee benefits of $7.6 million, which was driven by a 13% increase in full-time equivalent employees, mostly related to the acquisition of HF Financial Corp. completed in 2016, additional roles added to meet increased regulatory compliance expectations, and higher cost of employee benefits, which is primarily related to health insurance. Data processing costs increased by $1.0 million, driven by recent technology investments, and professional fees increased by $0.9 million, driven by consulting costs for compliance-related projects and investments in branch security.

The efficiency ratio1 was 47.0% for the quarter, an increase from 45.5% for the same quarter of fiscal year 2016 and from 45.1% in the December 2016 quarter. The sequential increase was primarily driven by a 2.5% increase in noninterest expenses between the two periods, which included increases in salaries and employee benefits and professional fees.

Provision for Income Taxes

The provision for income taxes for the second fiscal quarter ended March 31, 2017 was $18.2 million, reflecting an effective tax rate of 34.1% of income before income taxes. This compares to an effective tax rate of 35.9% for the second quarter of fiscal year 2016.

Capital

Tier 1 and total capital ratios were 11.6% and 12.7%, respectively, as of March 31, 2017, compared to 11.2% and 12.3%, respectively, as of December 31, 2016. The common equity tier 1 capital ratio was 10.8% as of March 31, 2017 and 10.4% as of December 31, 2016. The tier 1 leverage ratio was 10.0% as of March 31, 2017 and 9.7% as of December 31, 2016. All regulatory capital ratios remain above regulatory minimums to be considered "well capitalized."

On April 27, 2017, the Company’s Board of Directors declared a dividend of $0.20 per common share payable on May 24, 2017 to stockholders of record as of close of business on May 12, 2017. This represents an 18% increase compared to the $0.17 dividend declared in January 2017, which the Board of Directors felt was appropriate based on strong capital generation and regulatory capital ratios. The aggregate dividend payment will be approximately $11.8 million.

Business Outlook

"We made some significant progress during the quarter managing through some of our more challenging agriculture loan relationships, which included recognizing charge-offs on a number of relationships with specific reserves that we had previously identified as problems," added Karels. "We also managed a number of weaker agriculture relationships out of the bank, which we believe is best for the long-term health of the Company but also led to lower loan growth for the quarter. We are starting to see more activity in our loan pipeline and remain confident we can deliver mid-single-digit loan growth for the full year, which will be supported by the great deposit growth we delivered this quarter."

Conference Call

Great Western Bancorp, Inc. will host a conference call to discuss its financial results for the second quarter of fiscal year 2017 on Thursday, April 27, 2017 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 May 11, 2017. To access the replay, dial (877) 344-7529 (U.S.) and use conference ID 10103450. 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 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, including those related to the integration of the recently-completed acquisition of HF Financial Corp., 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, 2016, and all risk factors associated with the recently completed acquisition of HF Financial Corp. 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 six months ended: At or for the three months ended:
March 31, March 31, March 31,   December 31,  

September 30,

  June 30,   March 31,
2017 2016 2017 2016

2016

2016 2016
(dollars in thousands, except share and per share amounts)
Operating Data:
Interest and dividend income (FTE) $ 220,622 $ 191,408 $ 110,075 $ 110,548 $ 109,730 $ 102,094 $ 96,098
Interest expense 20,257 15,496 10,494 9,764 9,491 8,537 7,969
Noninterest income 27,741 17,642 13,834 13,907 15,798 9,097 8,999
Noninterest expense 106,389 89,075 53,852 52,537 57,342 61,222 44,855
Provision for loan and lease losses 11,058 6,520 4,009 7,049 5,063 5,372 2,631
Net income 72,065 61,135 35,162 36,903 33,758 26,360 30,674
Adjusted net income 1 $ 72,505 $ 61,613 $ 35,162 $ 37,343 $ 35,458 $ 33,911 $ 31,152
Common shares outstanding 58,760,517 55,245,177 58,760.517 58,755,989 58,693,304 58,693,499 55,245,177
Weighted average diluted common shares outstanding 59,032,787 55,401,164 59,073,669 58,991,905 58,938,367 57,176,705 55,408,876
Earnings per common share - diluted $ 1.22 $ 1.10 $ 0.60 $ 0.63 $ 0.57 $ 0.46 $ 0.55
Adjusted earnings per common share - diluted 1 $ 1.23 $ 1.11 $ 0.60 $ 0.63 $ 0.60 $ 0.59 $ 0.56
 
Performance Ratios:
Net interest margin (FTE) 2 3.93 % 3.99 % 3.98 % 3.89 % 3.92 % 3.95 % 3.99 %
Adjusted net interest margin (FTE) 1 2 3.77 % 3.74 % 3.83 % 3.71 % 3.73 % 3.74 % 3.75 %
Return on average total assets 2 1.27 % 1.24 % 1.26 % 1.28 % 1.19 % 1.00 % 1.24 %
Return on average common equity 2 8.6 % 8.3 % 8.5 % 8.8 % 8.2 % 6.8 % 8.3 %
Return on average tangible common equity 1 2 15.9 % 16.1 % 15.4 % 16.3 % 15.3 % 12.9 % 16.0 %
Efficiency ratio 1 46.0 % 45.3 % 47.0 % 45.1 % 48.5 % 58.8 % 45.5 %
 
Capital:
Tier 1 capital ratio 11.6 % 11.1 % 11.6 % 11.2 % 11.1 % 10.9 % 11.1 %
Total capital ratio 12.7 % 12.4 % 12.7 % 12.3 % 12.2 % 12.0 % 12.4 %
Tier 1 leverage ratio 10.0 % 9.5 % 10.0 % 9.7 % 9.5 % 10.0 % 9.5 %
Common equity tier 1 ratio 10.8 % 10.4 % 10.8 % 10.4 % 10.2 % 10.0 % 10.4 %
Tangible common equity / tangible assets 1 9.0 % 8.7 % 9.0 % 8.7 % 8.5 % 8.3 % 8.7 %
Book value per share - GAAP $ 29.05 $ 27.32 $ 29.05 $ 28.57 $ 28.34 $ 27.95 $ 27.32
Tangible book value per share 1 $ 16.29 $ 14.58 $ 16.29 $ 15.81 $ 15.55 $ 15.15 $ 14.58
 
Asset Quality:
Nonaccrual loans $ 127,675 $ 54,988 $ 127,675 $ 124,178 $ 126,395 $ 108,207 $ 54,988
OREO $ 6,994 $ 12,204 $ 6,994 $ 8,093 $ 10,282 $ 11,701 $ 12,204
Nonaccrual loans / total loans 1.47 % 0.73 % 1.47 % 1.41 % 1.46 % 1.26 % 0.73 %
Net charge-offs (recoveries) $ 13,015 $ 1,803 $ 8,091 $ 4,924 $ 4,654 $ 3,046 $ 1,852
Net charge-offs (recoveries) / average total loans 2 0.30 % 0.05 % 0.38 % 0.22 % 0.21 % 0.15 % 0.10 %
Allowance for loan and lease losses / total loans 0.72 % 0.82 % 0.72 % 0.76 % 0.74 % 0.75 % 0.82 %
Watch-rated loans $ 324,457 $ 333,597 $ 324,457 $ 334,673 $ 327,608 $ 395,893 $ 333,597

 

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 six months ended: At or for the three months ended:
March 31, March 31, March 31,   December 31,   September 30,   June 30,   March 31,
2017 2016 2017 2016 2016 2016 2016
(dollars in thousands)
Interest and dividend income
Loans $ 202,818 $ 175,388 $ 101,136 $ 101,683 $ 101,307 $ 93,749 $ 88,192
Taxable securities 11,933 11,774 6,055 5,878 5,649 5,826 5,787
Nontaxable securities 440 24 241 199 145 61 12
Dividends on securities 543 436 242 300 369 396 222
Federal funds sold and other   565     169     219     346     248     157     94  
Total interest and dividend income 216,299 187,791 107,893 108,406 107,718 100,189 94,307
Interest expense
Deposits 15,118 11,694 7,829 7,290 6,968 6,451 6,029
Securities sold under agreements to repurchase 212 271 98 115 125 124 132
FHLB advances and other borrowings 2,741 1,845 1,469 1,271 1,323 986 929
Subordinated debentures and subordinated notes payable   2,186     1,686     1,098     1,088     1,075     976     879  
Total interest expense   20,257     15,496     10,494     9,764     9,491     8,537     7,969  
Net interest income 196,042 172,295 97,399 98,642 98,227 91,652 86,338
Provision for loan and lease losses   11,058     6,520     4,009     7,049     5,063     5,372     2,631  
Net interest income after provision for loan and lease losses   184,984     165,775     93,390     91,593     93,164     86,280     83,707  
Noninterest income
Service charges and other fees 24,005 20,782 11,919 12,086 13,111 12,316 10,316
Wealth management fees 4,683 3,280 2,429 2,254 2,196 1,807 1,668
Mortgage banking income, net 4,302 2,474 1,640 2,662 3,119 1,669 1,204
Net gain (loss) on sale of securities 44 (330 ) 43 356 134 24
Net increase (decrease) in fair value of loans at fair value (69,218 ) 21,054 (5,216 ) (64,001 ) (8,939 ) 14,198 35,955
Net realized and unrealized gain (loss) on derivatives 60,568 (31,454 ) 1,592 58,976 4,721 (21,925 ) (40,893 )
Other   3,357     1,836     1,427     1,930     1,234     898     725  
Total noninterest income 27,741 17,642 13,834 13,907 15,798 9,097 8,999
Noninterest expense
Salaries and employee benefits 64,004 50,065 32,370 31,634 30,638 28,352 24,769
Data processing 11,642 10,196 5,965 5,677 5,896 5,625 4,950
Occupancy expenses 8,380 7,434 4,355 4,024 4,323 4,002 3,843
Professional fees 6,394 5,760 3,559 2,835 4,485 3,327 2,652
Communication expenses 1,953 1,862 914 1,040 1,072 788 928
Advertising 1,970 1,968 995 975 1,252 1,047 1,048
Equipment expenses 1,566 1,835 768 798 1,001 959 931
Net loss on repossessed property and other related expenses 1,056 100 397 658 784 379 210
Amortization of core deposits and other intangibles 1,389 1,417 550 839 1,024 822 708
Acquisition expenses 710 771 710 2,742 12,179 771
Other   7,325     7,667     3,979     3,347     4,125     3,742     4,045  
Total noninterest expense   106,389     89,075     53,852     52,537     57,342     61,222     44,855  
Income before income taxes 106,336 94,342 53,372 52,963 51,620 34,155 47,851
Provision for income taxes   34,271     33,207     18,210     16,060     17,862     7,795     17,177  
Net income $ 72,065   $ 61,135   $ 35,162   $ 36,903   $ 33,758   $ 26,360   $ 30,674  
 
GREAT WESTERN BANCORP, INC.
Summarized Consolidated Balance Sheet (Unaudited)
 
As of

March 31, 2017

 

December 31, 2016

 

September 30, 2016

 

June 30, 2016

 

March 31, 2016

(dollars in thousands)
Assets
Cash and cash equivalents $ 335,929 $ 270,168 $ 524,611 $ 475,785 $ 174,401
Securities 1,350,893 1,371,558 1,317,386 1,361,164 1,328,685
Total loans 8,697,426 8,779,107 8,682,644 8,606,974 7,557,788
Allowance for loan and lease losses   (62,685 )   (66,767 )   (64,642 )   (64,243 )   (61,917 )
Loans, net 8,634,741 8,712,340 8,618,002 8,542,731 7,495,871
Goodwill and other intangible assets 749,366 749,916 750,755 751,217 703,508
Other assets   285,912     318,635     320,426     322,325     239,830  
Total assets $ 11,356,841   $ 11,422,617   $ 11,531,180   $ 11,453,222   $ 9,942,295  
 
Liabilities and stockholders' equity
Noninterest-bearing deposits $ 2,026,627 $ 1,954,881 $ 1,880,512 $ 1,802,169 $ 1,503,981
Interest-bearing deposits   7,065,291     6,751,366     6,724,278     6,678,040     6,208,748  
Total deposits 9,091,918 8,706,247 8,604,790 8,480,209 7,712,729
Securities sold under agreements to repurchase 124,472 142,741 141,688 159,016 146,273
FHLB advances and other borrowings 264,624 711,029 871,037 913,377 370,000
Other liabilities   168,966     183,962     250,274     260,109     204,091  
Total liabilities 9,649,980 9,743,979 9,867,789 9,812,711 8,433,093
Stockholders' equity   1,706,861     1,678,638     1,663,391     1,640,511     1,509,202  
Total liabilities and stockholders' equity $ 11,356,841   $ 11,422,617   $ 11,531,180   $ 11,453,222   $ 9,942,295  
 
GREAT WESTERN BANCORP, INC.          
Loan Portfolio Summary (Unaudited)
 
As of Fiscal year-to-date:
March 31, December 31, September 30, Change Change
2017 2016 2016 ($) (%)
(dollars in thousands)
Commercial non-real estate $ 1,690,149 $ 1,643,986 $ 1,673,166 $ 16,983 1.0

 %

Agriculture 2,114,287 2,206,263 2,168,937 (54,650 ) (2.5 )%
Construction and development 450,419 423,864 469,968 (19,549 ) (4.2 )%
Owner-occupied CRE 1,191,348 1,197,253 1,167,265 24,083 2.1

 %

Non-owner-occupied CRE 1,754,631 1,775,107 1,678,007 76,624 4.6

 %

Multifamily residential real estate   454,437     455,880     438,867     15,570   3.5

 %

Commercial real estate 3,850,835 3,852,104 3,754,107 96,728 2.6

 %

Residential real estate 971,374 1,008,325 1,020,958 (49,584 ) (4.9 )%
Consumer 74,718 71,795 76,273 (1,555 ) (2.0 )%
Other 1   39,976     47,569     42,477     (2,501 )   (5.9 )%
Total unpaid principal balance 8,741,339 8,830,042 8,735,918 5,421 0.1

 %

Less: Unamortized discount on acquired loans and unearned net deferred fees and costs and loans in process   (43,913 )   (50,935 )   (53,274 )   9,361   17.6

 %

Total loans $ 8,697,426   $ 8,779,107   $ 8,682,644   $ 14,782   0.2

 %

 

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:
March 31, 2017   December 31, 2016 March 31, 2016

Average

  Interest   Yield /

Average

Interest Yield /

Average

Interest Yield /

Balance

(FTE) Cost (1)

Balance

(FTE) Cost (1)

Balance

(FTE) Cost (1)
(dollars in thousands)
Assets
Interest bearing bank deposits $ 109,737 $ 219 0.81 % $ 266,704 $ 346 0.51 % $ 75,063 $ 94 0.50 %
Investment securities 1,382,743 6,538 1.92 % 1,377,459 6,377 1.84 % 1,347,922 6,021 1.80 %
Non ASC 310-30 loans, net 2 8,531,652 101,007 4.80 % 8,515,947 101,481 4.73 % 7,371,600 88,325 4.82 %
ASC 310-30 loans, net   120,743     2,311   7.76 %   126,174     2,344   7.37 %   97,880     1,658   6.81 %
Loans, net   8,652,395     103,318   4.84 %   8,642,121     103,825   4.77 %   7,469,480     89,983   4.85 %
Total interest-earning assets 10,144,875 110,075 4.40 % 10,286,284 110,548 4.26 % 8,892,465 96,098 4.35 %
Noninterest-earning assets   1,146,196     1,152,013     1,031,022  
Total assets $ 11,291,071   $ 110,075   3.95 % $ 11,438,297   $ 110,548   3.83 % $ 9,923,487   $ 96,098   3.89 %
 
Liabilities and Stockholders' Equity
Noninterest-bearing deposits $ 1,825,174 $ 1,792,060 $ 1,373,728
NOW, money market and savings deposits 5,623,676 $ 5,759 0.42 % 5,548,112 $ 5,129 0.37 % 4,925,930 $ 3,856 0.31 %
Time deposits   1,286,203     2,070   0.65 %   1,348,119     2,161   0.64 %   1,288,775     2,173   0.68 %
Total deposits 8,735,053 7,829 0.36 % 8,688,291 7,290 0.33 % 7,588,433 6,029 0.32 %
Securities sold under agreements to repurchase 117,970 98 0.34 % 136,405 115 0.33 % 161,188 132 0.33 %
FHLB advances and other borrowings 571,338 1,469 1.04 % 716,953 1,271 0.70 % 489,773 929 0.76 %
Subordinated debentures and subordinated notes payable   108,196     1,098   4.12 %   110,962     1,088   3.89 %   90,758     879   3.90 %
Total borrowings   797,504     2,665   1.36 %   964,320     2,474   1.02 %   741,719     1,940   1.05 %
Total interest-bearing liabilities 9,532,557 $ 10,494 0.45 % 9,652,611 $ 9,764 0.40 % 8,330,152 $ 7,969 0.38 %
Noninterest-bearing liabilities 71,744 119,443 104,937
Stockholders' equity   1,686,770     1,666,243     1,488,398  
Total liabilities and stockholders' equity $ 11,291,071   $ 11,438,297   $ 9,923,487  
Net interest spread 3.50 % 3.43 % 3.51 %
Net interest income and net interest margin (FTE) $ 99,581   3.98 % $ 100,784   3.89 % $ 88,129   3.99 %
Less: Tax equivalent adjustment   2,182     2,142     1,791  
Net interest income and net interest margin - ties to Statements of Comprehensive Income $ 97,399   3.89 % $ 98,642   3.80 % $ 86,338   3.90 %

 

1 Annualized for all partial-year periods.

2 Interest income includes $1.0 million and $0.1 million for the second quarter of fiscal year 2017 and 2016, respectively, resulting from accretion of purchase accounting discount associated with acquired loans.

GREAT WESTERN BANCORP, INC.
Net Interest Margin (FTE) (Unaudited)
     
For the six months ended:
March 31, 2017   March 31, 2016
Average   Interest   Yield / Average Interest Yield /
Balance (FTE) Cost (1) Balance (FTE) Cost (1)
(dollars in thousands)
Assets
Interest bearing bank deposits $ 188,221 $ 565 0.60 % $ 88,049 $ 169 0.38 %
Investment securities 1,380,101 12,916 1.88 % 1,357,139 12,234 1.80 %
Non ASC 310-30 loans, net 2 8,523,800 202,488 4.76 % 7,282,371 175,718 4.83 %
ASC 310-30 loans, net   123,458     4,653   7.56 %   100,999     3,287   6.51 %
Loans, net   8,647,258     207,141   4.80 %   7,383,370     179,005   4.85 %
Total interest-earning assets 10,215,580 220,622 4.33 % 8,828,558 191,408 4.34 %
Noninterest-earning assets   1,149,109     1,039,527  
Total assets $ 11,364,689   $ 220,622   3.89 % $ 9,868,085   $ 191,408   3.88 %
 
Liabilities and Stockholders' Equity
Noninterest-bearing deposits $ 1,808,617 $ 1,382,340
NOW, money market and savings deposits 5,585,894 $ 10,888 0.39 % 4,841,681 $ 7,228 0.30 %
Time deposits   1,317,161     4,230   0.64 %   1,319,942     4,466   0.68 %
Total deposits 8,711,672 15,118 0.35 % 7,543,963 11,694 0.31 %
Securities sold under agreements to repurchase 127,188 212 0.33 % 169,126 271 0.32 %
FHLB advances and other borrowings 644,079 2,741 0.85 % 485,767 1,845 0.76 %
Subordinated debentures and subordinated notes payable   109,579     2,186   4.00 %   90,748     1,686   3.72 %
Total borrowings   880,846     5,139   1.17 %   745,641     3,802   1.02 %
Total interest-bearing liabilities 9,592,518 $ 20,257 0.42 % 8,289,604 $ 15,496 0.37 %
Noninterest-bearing liabilities 95,665 102,057
Stockholders' equity   1,676,506     1,476,424  
Total liabilities and stockholders' equity $ 11,364,689   $ 9,868,085  
Net interest spread 3.47 % 3.51 %
Net interest income and net interest margin (FTE) $ 200,365   3.93 % $ 175,912   3.99 %
Less: Tax equivalent adjustment   4,323     3,617  
Net interest income and net interest margin - ties to Statements of Comprehensive Income $ 196,042   3.85 % $ 172,295   3.90 %

 

1 Annualized for all partial-year periods.

2 Interest income includes $2.3 million and $0.2 million for the second quarter of fiscal year 2017 and 2016, 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.

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). 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 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 cash 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 six months ended: At or for the three months ended:
March 31, March 31, March 31, December 31, September 30, June 30, March 31,
2017 2016 2017 2016 2016 2016 2016
(dollars in thousands except share and per share amounts)
Adjusted net income and adjusted earnings per common share:
Net income - GAAP $ 72,065 $ 61,135 $ 35,162 $ 36,903 $ 33,758 $ 26,360 $ 30,674
Add: Acquisition expenses 710 771 710 2,742 12,179 771
Add: Tax effect at 38%   (270 )   (293 )       (270 )   (1,042 )   (4,628 )   (293 )
Adjusted net income $ 72,505   $ 61,613   $ 35,162   $ 37,343   $ 35,458   $ 33,911   $ 31,152  
 
Weighted average diluted common shares outstanding 59,032,787 55,401,164 59,073,669 58,991,905 58,938,367 57,176,705 55,408,876
Earnings per common share - diluted $ 1.22 $ 1.10 $ 0.60 $ 0.63 $ 0.57 $ 0.46 $ 0.55
Adjusted earnings per common share - diluted $ 1.23 $ 1.11 $ 0.60 $ 0.63 $ 0.60 $ 0.59 $ 0.56
 
Tangible net income and return on average tangible common equity:
Net income - GAAP $ 72,065 $ 61,135 $ 35,162 $ 36,903 $ 33,758 $ 26,360 $ 30,674
Add: Amortization of intangible assets 1,389 1,417 550 839 1,024 822 708
Add: Tax on amortization of intangible assets   (213 )   (440 )   (50 )   (163 )   (220 )   (220 )   (220 )
Tangible net income $ 73,241   $ 62,112   $ 35,662   $ 37,579   $ 34,562   $ 26,962   $ 31,162  
 
Average common equity $ 1,676,506 $ 1,476,424 $ 1,686,770 $ 1,666,243 $ 1,647,155 $ 1,567,372 $ 1,488,398
Less: Average goodwill and other intangible assets   749,964     704,221     749,638     750,290     750,756     727,707     703,866  
Average tangible common equity $ 926,542   $ 772,203   $ 937,132   $ 915,953   $ 896,399   $ 839,665   $ 784,532  
Return on average common equity * 8.6 % 8.3 % 8.5 % 8.8 % 8.2 % 6.8 % 8.3 %
Return on average tangible common equity ** 15.9 % 16.1 % 15.4 % 16.3 % 15.3 % 12.9 % 16.0 %
 
* 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.
 
GREAT WESTERN BANCORP, INC.  
Reconciliation of Non-GAAP Measures (Unaudited)
           
At or for the six months ended: At or for the three months ended:
March 31, March 31, March 31, December 31, September 30, June 30, March 31,
2017 2016 2017 2016 2016 2016 2016
(dollars in thousands except share and per share amounts)
Adjusted net interest income and adjusted net interest margin (fully-tax equivalent basis):
Net interest income - GAAP $ 196,042 $ 172,295 $ 97,399 $ 98,642 $ 98,227 $ 91,652 $ 86,338
Add: Tax equivalent adjustment   4,323     3,617     2,182     2,142     2,012     1,905     1,791  
Net interest income (FTE) 200,365 175,912 99,581 100,784 100,239 93,557 88,129
Add: Current realized derivative gain (loss)   (8,361 )   (10,827 )   (3,875 )   (4,486 )   (4,895 )   (5,005 )   (5,175 )
Adjusted net interest income (FTE) $ 192,004   $ 165,085   $ 95,706   $ 96,298   $ 95,344   $ 88,552   $ 82,954  
 
Average interest-earning assets $ 10,215,580 $ 8,828,558 $ 10,144,875 $ 10,286,284 $ 10,173,743 $ 9,528,576 $ 8,892,465
Net interest margin (FTE) * 3.93 % 3.99 % 3.98 % 3.89 % 3.92 % 3.95 % 3.99 %
Adjusted net interest margin (FTE) ** 3.77 % 3.74 % 3.83 % 3.71 % 3.73 % 3.74 % 3.75 %
 
* 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 $ 198,165 $ 172,101 $ 98,825 $ 99,339 $ 99,058 $ 91,829 $ 86,534
Add: Tax equivalent adjustment   4,323     3,617     2,182     2,142     2,012     1,905     1,791  

Interest income (FTE)

202,488 175,718 101,007 101,481 101,070 93,734 88,325
Add: Current realized derivative gain (loss)   (8,361 )   (10,827 )   (3,875 )   (4,486 )   (4,895 )   (5,005 )   (5,175 )
Adjusted interest income (FTE) $ 194,127   $ 164,891   $ 97,132   $ 96,995   $ 96,175   $ 88,729   $ 83,150  
 
Average non ASC 310-30 loans $ 8,523,800 $ 7,282,371 $ 8,531,652 $ 8,515,947 $ 8,477,214 $ 7,903,860 $ 7,371,600
Yield (FTE) * 4.76 % 4.83 % 4.80 % 4.73 % 4.74 % 4.77 % 4.82 %
Adjusted yield (FTE) ** 4.57 % 4.53 % 4.62 % 4.52 % 4.51 % 4.52 % 4.54 %
 
* 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 $ 223,783 $ 189,940 $ 111,233 $ 112,549 $ 114,025 $ 100,749 $ 95,339
Add: Tax equivalent adjustment   4,323     3,617     2,182     2,142     2,012     1,905     1,791  
Total revenue (FTE) $ 228,106   $ 193,557   $ 113,415   $ 114,691   $ 116,037   $ 102,654   $ 97,130  
 
Noninterest expense $ 106,389 $ 89,075 $ 53,852 $ 52,537 $ 57,342 $ 61,222 $ 44,855
Less: Amortization of intangible assets   1,389     1,417     550     839     1,024     822     708  
Tangible noninterest expense $ 105,000   $ 87,658   $ 53,302   $ 51,698   $ 56,318   $ 60,400   $ 44,147  
Efficiency ratio * 46.0 % 45.3 % 47.0 % 45.1 % 48.5 % 58.8 % 45.5 %
 
* Calculated as the ratio of tangible noninterest expense to total revenue (FTE).
 
GREAT WESTERN BANCORP, INC.
Reconciliation of Non-GAAP Measures (Unaudited)
             
At or for the six months ended: At or for the three months ended:
March 31, March 31, March 31, December 31, September 30, June 30, March 31,
2017 2016 2017 2016 2016 2016 2016
(dollars in thousands except share and per share amounts)
Tangible common equity and tangible common equity to tangible assets:
Total stockholders' equity $ 1,706,861 $ 1,509,202 $ 1,706,861 $ 1,678,638 $ 1,663,391 $ 1,640,511 $ 1,509,202
Less: Goodwill and other intangible assets   749,366     703,508     749,366     749,916     750,755     751,217     703,508  
Tangible common equity $ 957,495   $ 805,694   $ 957,495   $ 928,722   $ 912,636   $ 889,294   $ 805,694  
 
Total assets $ 11,356,841 $ 9,942,295 $ 11,356,841 $ 11,422,617 $ 11,531,180 $ 11,453,222 $ 9,942,295
Less: Goodwill and other intangible assets   749,366     703,508     749,366     749,916     750,755     751,217     703,508  
Tangible assets $ 10,607,475   $ 9,238,787   $ 10,607,475   $ 10,672,701   $ 10,780,425   $ 10,702,005   $ 9,238,787  
Tangible common equity to tangible assets 9.0 % 8.7 % 9.0 % 8.7 % 8.5 % 8.3 % 8.7 %
 
Tangible book value per share:
Total stockholders' equity $ 1,706,861 $ 1,509,202 $ 1,706,861 $ 1,678,638 $ 1,663,391 $ 1,640,511 $ 1,509,202
Less: Goodwill and other intangible assets   749,366     703,508     749,366     749,916     750,755     751,217     703,508  
Tangible common equity $ 957,495   $ 805,694   $ 957,495   $ 928,722   $ 912,636   $ 889,294   $ 805,694  
 
Common shares outstanding 58,760,517 55,245,177 58,760,517 58,755,989 58,693,304 58,693,499 55,245,177
Book value per share - GAAP $ 29.05 $ 27.32 $ 29.05 $ 28.57 $ 28.34 $ 27.95 $ 27.32
Tangible book value per share $ 16.29 $ 14.58 $ 16.29 $ 15.81 $ 15.55 $ 15.15 $ 14.58

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.