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Press Release

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

Company Release - 7/26/2018 7:00 AM ET

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

  • Net income was $45.9 million, or $0.78 per diluted share, for the quarter, compared to net income of $40.5 million, or $0.69 per diluted share
  • Net interest margin and adjusted net interest margin1, 2 were 3.97% and 3.94%, increases of 5 and 8 basis points, respectively
  • The efficiency ratio1 was reduced to 45.8% for the quarter and 46.7% for fiscal year-to-date
  • Total loans increased $41.5 million, or 0.4%, to $9.38 billion, bringing fiscal year-to-date growth to $411.3 million, or 4.6%
  • Total deposits grew to $9.59 billion, an increase of $198.4 million, or 2.1%, for the quarter and $607.7 million, or 6.8%, for fiscal year-to-date
  • Key asset quality metrics including nonaccrual loans, watch loans and other repossessed property improved during the quarter, while net charge-offs remained stable and substandard loans grew slightly

SIOUX FALLS, S.D.--(BUSINESS WIRE)-- Great Western Bancorp, Inc. (NYSE: GWB) today reported net income of $45.9 million, or $0.78 per diluted share, for the third quarter of fiscal year 2018, compared to net income of $40.5 million, or $0.69 per diluted share.

"It is pleasing to see another quarter of solid earnings, stable asset quality and strong profitability," said Ken Karels, Chairman, President and Chief Executive Officer. "Our efficiency ratio remains strong at 45.8% for the quarter, and also our return on tangible common equity1, has improved to 17.7%."

Net Interest Income and Net Interest Margin2

Net interest income was $106.4 million for the quarter, an increase of $4.2 million, or 4.1%. Higher loan interest income, driven by 1.7% growth in average loans outstanding and a 15 basis point increase in the yield on loans, was partially offset by higher interest expense associated with a 13 basis point increase in the cost of deposits.

Net interest margin was 3.97% and 3.92%, respectively, for the quarters ended June 30, 2018 and March 31, 2018. Adjusted net interest margin1, which adjusts for the realized gain (loss) on interest rate swaps, was 3.94% and 3.86%, respectively, for the same periods. The yield on interest-earning assets increased by 15 basis points and the cost of interest-bearing liabilities increased by 11 basis points. A $0.8 million reduction in the cost of interest rate swaps was the primary driver of a more pronounced increase in adjusted net interest margin1 compared to net interest margin.

Total loans outstanding were $9.38 billion as of June 30, 2018, an increase of $41.5 million, or 0.4%, for the quarter. The majority of the growth during the quarter occurred in the commercial real estate ("CRE") category of the portfolio, across both non-owner and owner occupied segments, which increased by $61.7 million, partially offset by a decrease of $16.8 million in the commercial non-real estate category of the portfolio.

Total deposits grew to $9.59 billion as of June 30, 2018, an increase of $198.4 million, or 2.1%, during the quarter. Noninterest-bearing deposits were $1.79 billion, a 3.3% decrease, for the quarter and interest-bearing deposits were $7.79 billion, a 3.4% increase for the quarter. FHLB and other borrowings decreased by $216.0 million, or 39.2%, as a result of deposit funding being more cost effective during the June quarter.

Provision for Loan and Lease Losses and Asset Quality

Provision for loan and lease losses was $3.5 million for the quarter, a decrease of $1.4 million, or 28.3%. Net charge-offs for the quarter were $4.0 million, or 0.17% of average total loans on an annualized basis, with the majority of net charge-offs concentrated in the CRE and agriculture segments of the loan portfolio. The ratio of allowance for loan and lease losses ("ALLL") to total loans was 0.69% at June 30, 2018, a decrease from 0.70%.

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.

Included within total loans are approximately $888.2 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 $7.4 million of the fair value adjustment for these loans relates to credit risk, or 0.08% of total loans. Finally, total purchase discount remaining on all acquired loans equates to 0.21% of total loans.

At June 30, 2018, loans graded "Watch" decreased $18.9 million, or 6.4% while loans graded "Substandard" increased $16.7 million, or 6.6%. Nonaccrual loans were $127.3 million as of June 30, 2018, representing a decrease of $4.0 million during the quarter. Total other repossessed property balances were $10.2 million as of June 30, 2018, a decrease of $6.5 million, or 38.9%, due to four larger holdings sold during the quarter.

Total credit-related charges decreased compared to the previous quarter and the first nine months of fiscal year 2017. A summary of total credit-related charges incurred during the current, prior and comparable quarters and current and prior nine-month periods is presented below:

 
GREAT WESTERN BANCORP, INC.
Summary of Credit-Related Charges (Unaudited)
                       
For the nine months ended: For the three months ended:
Item Included within F/S Line Item(s): June 30, 2018 June 30, 2017 June 30, 2018 March 31, 2018 June 30, 2017
(dollars in thousands)
Provision for loan and lease losses Provision for loan and lease losses $ 12,972 $ 16,854 $ 3,515 $ 4,900 $ 5,796
Net other repossessed property charges Net loss on repossessed property and other related expenses 1,519 1,208 305 1,000 152
Reversal (recovery) of interest income on nonaccrual loans Interest income on loans 1,126 233 216 (157 ) 332
Loan fair value adjustment related to credit Net increase (decrease) in fair value of loans at fair value   197   (4 )   (123 )   1,358     (293 )
Total $ 15,814 $ 18,291   $ 3,913   $ 7,101   $ 5,987  
 

Noninterest Income

Noninterest income was $18.9 million for the third quarter of fiscal year 2018, an increase of $0.2 million, or 1.1%. Included within noninterest income is the net effect of the change in fair value loans for which the Company has elected the fair value option and the net gain (loss), realized and unrealized, of the related derivatives which generated a $1.3 million favorable change over the prior quarter. Service charges and other fees increased by $0.6 million primarily related to increases in credit card interchange income and net overdraft and non-sufficient funds income. Other income declined by $1.8 million due to a nonrecurring $2.6 million sign on bonus for a new contract recognized in the prior quarter, partially offset by a $0.9 million gain on the sale of stock shares held in the current quarter.

Noninterest Expense

Total noninterest expense was $57.9 million for the third quarter of fiscal year 2018, a decrease of $1.3 million, or 2.2%. In the prior quarter, noninterest expense included an estimated one time breakage cost on a prior contract of $2.3 million. Excluding this item, noninterest expenses increased $1.0 million, or 1.7% during the quarter. This increase was driven by a $1.5 million increase in salaries and employee benefits due to increases in health care costs of $0.4 million, pension expense of $0.3 million and employee related consulting fees of $0.4 million, partially offset by a $0.7 million decrease in net loss on repossessed property.

The efficiency ratio1 was 45.8% for the quarter, a decrease from 48.6%, as a result of a nonrecurring sign on bonus for a new contract recognized in the prior quarter offset by an estimated one time breakage cost on a prior contract as discussed in noninterest income and expense above.

Provision for Income Taxes

The provision for income taxes for the quarter ended June 30, 2018 was $16.4 million, reflecting an effective tax rate of 26.3%, compared to an effective tax rate of 26.6% for the prior quarter.

Capital

Tier 1 and total capital ratios were 11.8% and 12.8%, respectively, as of June 30, 2018, compared to 11.5% and 12.5%. The common equity tier 1 capital ratio and tier 1 leverage ratio were 11.0% and 10.6% as of June 30, 2018 compared to 10.7% and 10.4%, respectively. All regulatory capital ratios remain above regulatory minimums to be considered "well capitalized."

On July 26, 2018, the Company’s Board of Directors declared a dividend of $0.25 per common share payable on August 22, 2018 to stockholders of record as of close of business on August 10, 2018. The aggregate dividend payment will be approximately $14.7 million.

Business Outlook

"We remain positive looking ahead to the last quarter of our 2018 fiscal year. Loan demand is solid and we remain confident loan growth will be in the mid to high single digit range for the full fiscal year," added Karels. "We also have had continued success in recruiting new talent to the company and look forward to entering a number of new markets during the next twelve months."

Conference Call

Great Western Bancorp, Inc. will host a conference call to discuss its financial results for the third quarter of fiscal year 2018 on Thursday, July 26, 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 August 9, 2018. To access the replay, dial (877) 344-7529 (U.S.) and use conference ID 10121658. 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 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, and in the Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2018. 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 nine months ended: At or for the three months ended:
June 30, June 30, June 30, March 31, December 31, September 30, June 30,
2018 2017 2018 2018 2017 2017 2017
(dollars in thousands, except share and per share amounts)
Operating Data:
Interest income (FTE) $ 361,514 $ 327,929 $ 126,146 $ 118,849 $ 116,519 $ 115,185 $ 110,713
Interest expense 50,756 31,928 19,745 16,680 14,332 13,391 11,671
Noninterest income 54,355 48,474 18,939 18,742 16,674 14,740 17,327
Noninterest expense 171,875 161,312 57,863 59,144 54,868 55,332 54,922
Provision for loan and lease losses 12,972 16,854 3,515 4,900 4,557 4,685 5,796
Net income 115,636 107,125 45,874 40,532 29,230 37,662 35,060
Adjusted net income ¹ $ 129,222 $ 107,565 $ 45,874 $ 40,532 $ 42,816 $ 37,662 $ 35,060
Common shares outstanding 58,911,563 58,761,597 58,911,563 58,896,189 58,896,189 58,834,066 58,761,597
Weighted average diluted common shares outstanding 59,134,635 59,065,402 59,170,058 59,146,117 59,087,729 59,914,144 59,130,632
Earnings per common share - diluted $ 1.96 $ 1.81 $ 0.78 $ 0.69 $ 0.49 $ 0.64 $ 0.59
Adjusted earnings per common share - diluted ¹ $ 2.19 $ 1.82 $ 0.78 $ 0.69 $ 0.72 $ 0.64 $ 0.59
 
Performance Ratios:
Net interest margin (FTE) ¹ ² 3.93 % 3.89 % 3.97 % 3.92 % 3.89 % 3.93 % 3.92 %
Adjusted net interest margin (FTE) ¹ ² 3.87 % 3.73 % 3.94 % 3.86 % 3.80 % 3.82 % 3.79 %
Return on average total assets ² 1.32 % 1.26 % 1.55 % 1.40 % 1.00 % 1.30 % 1.25 %
Return on average common equity ² 8.7 % 8.5 % 10.2 % 9.3 % 6.6 % 8.6 % 8.2 %
Return on average tangible common equity ¹ ² 15.2 % 15.5 % 17.7 % 16.2 % 11.6 % 15.2 % 14.8 %
Efficiency ratio ¹ 46.7 % 46.3 % 45.8 % 48.6 % 45.8 % 47.1 % 46.7 %
 
Capital:
Tier 1 capital ratio 11.8 % 11.5 % 11.8 % 11.5 % 11.3 % 11.4 % 11.5 %
Total capital ratio 12.8 % 12.6 % 12.8 % 12.5 % 12.3 % 12.5 % 12.6 %
Tier 1 leverage ratio 10.6 % 10.3 % 10.6 % 10.4 % 10.3 % 10.3 % 10.3 %
Common equity tier 1 ratio 11.0 % 10.7 % 11.0 % 10.7 % 10.5 % 10.7 % 10.7 %
Tangible common equity / tangible assets ¹ 9.5 % 9.2 % 9.5 % 9.3 % 9.2 % 9.2 % 9.2 %
Book value per share - GAAP $ 30.84 $ 29.49 $ 30.84 $ 30.37 $ 30.02 $ 29.83 $ 29.49
Tangible book value per share ¹ $ 18.16 $ 16.75 $ 18.16 $ 17.68 $ 17.32 $ 17.11 $ 16.75
 
Asset Quality:
Nonaccrual loans $ 127,315 $ 123,641 $ 127,315 $ 131,274 $ 147,325 $ 138,312 $ 123,641
Other repossessed property $ 10,221 $ 9,051 $ 10,221 $ 16,726 $ 10,486 $ 8,985 $ 9,051
Nonaccrual loans / total loans 1.36 % 1.41 % 1.36 % 1.41 % 1.61 % 1.54 % 1.41 %
Net charge-offs (recoveries) $ 11,787 $ 17,282 $ 3,966 $ 3,784 $ 4,037 $ 5,394 $ 4,267
Net charge-offs (recoveries) / average total loans ² 0.17 % 0.27 % 0.17 % 0.17 % 0.18 % 0.24 % 0.20 %
Allowance for loan and lease losses / total loans 0.69 % 0.73 % 0.69 % 0.70 % 0.70 % 0.71 % 0.73 %
Watch-rated loans $ 276,001 $ 298,963 $ 276,001 $ 294,873 $ 287,468 $ 311,611 $ 298,963
 

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 nine months ended: At or for the three months ended:
June 30, June 30, June 30, March 31, December 31, September 30, June 30,
2018 2017 2018 2018 2017 2017 2017
(dollars in thousands)
Interest income
Loans $ 334,196 $ 301,005 $ 116,522 $ 109,993 $ 107,680 $ 106,277 $ 101,593
Investment securities 21,526 19,719 7,471 7,013 7,043 6,592 6,803
Federal funds sold and other 882   728   424   227   231   194   163  
Total interest income 356,604 321,452 124,417 117,233 114,954 113,063 108,559
Interest expense
Deposits 40,116 24,596 16,460 12,658 10,998 10,439 9,478
FHLB advances and other borrowings 6,941 4,033 1,963 2,815 2,164 1,787 1,080
Subordinated debentures and subordinated notes payable 3,699   3,299   1,322   1,207   1,170   1,165   1,113  
Total interest expense 50,756   31,928   19,745   16,680   14,332   13,391   11,671  
Net interest income 305,848 289,524 104,672 100,553 100,622 99,672 96,888
Provision for loan and lease losses 12,972   16,854   3,515   4,900   4,557   4,685   5,796  
Net interest income after provision for loan and lease losses 292,876   272,670   101,157   95,653   96,065   94,987   91,092  
Noninterest income
Service charges and other fees 37,879 41,983 12,655 12,047 13,178 13,742 14,572
Wealth management fees 6,761 7,116 2,242 2,335 2,185 2,002 2,433
Mortgage banking income, net 4,178 6,130 1,352 1,166 1,660 1,798 1,828
Net gain (loss) on sale of securities 6 44 15 (8 ) (1 ) 32
Net (decrease) increase in fair value of loans at fair value (30,872 ) (63,158 ) (7,370 ) (14,838 ) (8,665 ) (2,073 ) 6,060
Net realized and unrealized gain (loss) on derivatives 29,602 51,481 8,093 14,282 7,227 (1,581 ) (9,088 )
Other 6,801   4,878   1,952   3,758   1,090   820   1,522  
Total noninterest income 54,355 48,474 18,939 18,742 16,674 14,740 17,327
Noninterest expense
Salaries and employee benefits 101,661 96,872 35,122 33,672 32,868 31,263 32,868
Data processing and communication 23,251 20,965 7,177 9,190 6,884 7,324 7,370
Occupancy and equipment 15,112 14,812 4,974 5,290 4,848 5,006 4,866
Professional fees 12,564 10,535 4,297 4,027 4,240 4,503 4,141
Advertising 3,441 3,029 1,260 1,121 1,059 954 1,059
Net loss on repossessed property and other related expenses 1,519 1,208 305 1,000 214 541 152
Amortization of core deposits and other intangibles 1,268 1,927 416 426 426 430 538
Acquisition expenses 710
Other 13,059   11,254   4,312   4,418   4,329   5,311   3,928  
Total noninterest expense 171,875   161,312   57,863   59,144   54,868   55,332   54,922  
Income before income taxes 175,356 159,832 62,233 55,251 57,871 54,395 53,497
Provision for income taxes 59,720   52,707   16,359   14,719   28,641   16,733   18,437  
Net income $ 115,636   $ 107,125   $ 45,874   $ 40,532   $ 29,230   $ 37,662   $ 35,060  
 
GREAT WESTERN BANCORP, INC.          
Summarized Consolidated Balance Sheet (Unaudited)
 
As of
June 30, 2018 March 31, 2018 December 31, 2017 September 30, 2017 June 30, 2017
(dollars in thousands)
Assets
Cash and cash equivalents $ 294,614 $ 371,749 $ 297,596 $ 360,396 $ 327,901
Investment securities 1,372,711 1,307,598 1,366,641 1,367,960 1,366,442
Total loans 9,379,819 9,338,306 9,165,373 8,968,553 8,791,852
Allowance for loan and lease losses (64,688 ) (65,139 ) (64,023 ) (63,503 ) (64,214 )
Loans, net 9,315,131 9,273,167 9,101,350 8,905,050 8,727,638
Goodwill 739,023 739,023 739,023 739,023 739,023
Other assets 287,569   300,780   301,971   317,582   305,180  
Total assets $ 12,009,048   $ 11,992,317   $ 11,806,581   $ 11,690,011   $ 11,466,184  
 
Liabilities and stockholders' equity
Noninterest-bearing deposits $ 1,793,293 $ 1,854,734 $ 1,932,080 $ 1,856,126 $ 1,915,560
Interest-bearing deposits 7,792,025   7,532,233   7,092,105   7,121,487   7,043,542  
Total deposits 9,585,318 9,386,967 9,024,185 8,977,613 8,959,102
Securities sold under agreements to repurchase 105,478 103,291 116,884 132,636 123,851
FHLB advances and other borrowings 335,000 551,003 721,009 643,214 471,719
Other liabilities 166,511   162,358   176,630   181,548   178,529  
Total liabilities 10,192,307 10,203,619 10,038,708 9,935,011 9,733,201
Stockholders' equity 1,816,741   1,788,698   1,767,873   1,755,000   1,732,983  
Total liabilities and stockholders' equity $ 12,009,048   $ 11,992,317   $ 11,806,581   $ 11,690,011   $ 11,466,184  
 
GREAT WESTERN BANCORP, INC.            
Loan Portfolio Summary (Unaudited)
 
As of Fiscal year-to-date:
June 30, March 31, December 31, September 30, Change Change
2018 2018 2017 2017 ($) (%)
(dollars in thousands)
Construction and development $ 733,612 $ 721,340 $ 622,985 $ 538,736 $ 194,876 36.2

 %

Owner-occupied CRE 1,360,969 1,341,034 1,317,585 1,219,523 141,446 11.6

 %

Non-owner-occupied CRE 2,123,002 2,077,424 2,035,987 2,025,326 97,676 4.8

 %

Multifamily residential real estate 311,863   327,980   319,139   341,220   (29,357 ) (8.6 )%
Commercial real estate 4,529,446 4,467,778 4,295,696 4,124,805 404,641 9.8

 %

Agriculture 2,176,318 2,177,020 2,177,383 2,122,138 54,180 2.6

 %

Commercial non-real estate 1,750,827 1,767,587 1,695,731 1,718,914 31,913 1.9

 %

Residential real estate 857,848 866,982 924,439 932,892 (75,044 ) (8.0 )%
Consumer 51,417 55,190 62,872 66,559 (15,142 ) (22.8 )%
Other ¹ 44,187   41,816   45,805   43,207   980   2.3

 %

Total unpaid principal balance 9,410,043 9,376,373 9,201,926 9,008,515 401,528 4.5

 %

Less: Unamortized discount on acquired loans and unearned net deferred fees and costs and loans in process (30,224 ) (38,067 ) (36,553 ) (39,962 ) 9,738   (24.4 )%
Total loans $ 9,379,819   $ 9,338,306   $ 9,165,373   $ 8,968,553   $ 411,266   4.6

 %

 
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:
June 30, 2018 March 31, 2018 June 30, 2017
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 $ 90,868 $ 424 1.87 % $ 58,943 $ 227 1.56 % $ 62,187 $ 163 1.05 %
Investment securities 1,357,808 7,471 2.21 % 1,365,152 7,013 2.08 % 1,398,370 6,803 1.95 %
Non ASC 310-30 loans, net ² 9,220,931 114,489 4.98 % 9,064,899 108,427 4.85 % 8,550,349 100,878 4.73 %
ASC 310-30 loans, net 78,471 3,762 19.23 % 82,306 3,182 15.68 % 113,498 2,869 10.14 %
Loans, net 9,299,402 118,251 5.10 % 9,147,205 111,609 4.95 % 8,663,847 103,747 4.80 %
Total interest-earning assets 10,748,078 126,146 4.71 % 10,571,300 118,849 4.56 % 10,124,404 110,713 4.39 %
Noninterest-earning assets 1,152,724 1,155,481 1,154,295
Total assets $ 11,900,802 $ 126,146 4.25 % $ 11,726,781 $ 118,849 4.11 % $ 11,278,699 $ 110,713 3.94 %
 
Liabilities and Stockholders' Equity
Noninterest-bearing deposits $ 1,793,784 $ 1,786,059 $ 1,815,407
Interest-bearing deposits 6,101,679 $ 11,705 0.77 % 5,929,757 $ 9,490 0.65 % 5,849,998 $ 7,172 0.49 %
Time deposits 1,578,253 4,755 1.21 % 1,315,209 3,168 0.98 % 1,289,402 2,306 0.72 %
Total deposits 9,473,716 16,460 0.70 % 9,031,025 12,658 0.57 % 8,954,807 9,478 0.42 %
Securities sold under agreements to repurchase 99,897 80 0.32 % 107,921 83 0.31 % 118,373 86 0.29 %
FHLB advances and other borrowings 357,102 1,883 2.11 % 652,787 2,732 1.70 % 303,846 994 1.31 %
Subordinated debentures and subordinated notes payable 108,398 1,322 4.89 % 108,358 1,207 4.52 % 108,234 1,113 4.13 %
Total borrowings 565,397 3,285 2.33 % 869,066 4,022 1.88 % 530,453 2,193 1.66 %
Total interest-bearing liabilities 10,039,113 $ 19,745 0.79 % 9,900,091 $ 16,680 0.68 % 9,485,260 $ 11,671 0.49 %
Noninterest-bearing liabilities 65,623 56,573 77,979
Stockholders' equity 1,796,066 1,770,117 1,715,460
Total liabilities and stockholders' equity $ 11,900,802 $ 11,726,781 $ 11,278,699
Net interest spread 3.46 % 3.43 % 3.45 %
Net interest income and net interest margin (FTE) $ 106,401 3.97 % $ 102,169 3.92 % $ 99,042 3.92 %
Less: Tax equivalent adjustment 1,729 1,616 2,154
Net interest income and net interest margin - ties to Statements of Comprehensive Income $ 104,672 3.91 % $ 100,553 3.86 % $ 96,888 3.84 %
 
1 Annualized for all partial-year periods.

2 Interest income includes $0.9 million and $0.7 million for the third quarter of fiscal year 2018 and 2017, respectively, resulting from accretion of purchase accounting discount associated with acquired loans.

 
GREAT WESTERN BANCORP, INC.          
Net Interest Margin (FTE) (Unaudited)
 
For the nine months ended:
June 30, 2018 June 30, 2017
Average Interest Yield / Average Interest Yield /
Balance (FTE) ¹ Cost ² Balance (FTE) ¹ Cost ²
(dollars in thousands)
Assets
Interest bearing bank deposits $ 71,915 $ 882 1.64 % $ 146,209 $ 728 0.67 %
Investment securities 1,379,713 21,526 2.09 % 1,386,190 19,719 1.90 %
Non ASC 310-30 loans, net ³ 9,042,253 329,416 4.87 % 8,532,650 299,960 4.70 %
ASC 310-30 loans, net 83,539 9,690 15.51 % 120,138 7,522 8.37 %
Loans, net 9,125,792 339,106 4.97 % 8,652,788 307,482 4.75 %
Total interest-earning assets 10,577,420 361,514 4.57 % 10,185,187 327,929 4.30 %
Noninterest-earning assets 1,161,618 1,150,838
Total assets $ 11,739,038 $ 361,514 4.12 % $ 11,336,025 $ 327,929 3.87 %
 
Liabilities and Stockholders' Equity
Noninterest-bearing deposits $ 1,808,110 $ 1,810,880
Interest-bearing deposits 5,972,877 $ 29,486 0.66 % 5,673,929 $ 18,060 0.43 %
Time deposits 1,386,921 10,630 1.02 % 1,307,908 6,536 0.67 %
Total deposits 9,167,908 40,116 0.59 % 8,792,717 24,596 0.37 %
Securities sold under agreements to repurchase 110,959 259 0.31 % 124,249 298 0.32 %
FHLB advances and other borrowings 509,822 6,682 1.75 % 530,668 3,735 0.94 %
Subordinated debentures and subordinated notes payable 108,357 3,699 4.56 % 109,130 3,299 4.04 %
Total borrowings 729,138 10,640 1.95 % 764,047 7,332 1.28 %
Total interest-bearing liabilities 9,897,046 $ 50,756 0.69 % 9,556,764 $ 31,928 0.45 %
Noninterest-bearing liabilities 66,225 89,770
Stockholders' equity 1,775,767 1,689,491
Total liabilities and stockholders' equity $ 11,739,038 $ 11,336,025
Net interest spread 3.43 % 3.42 %
Net interest income and net interest margin (FTE) ¹ $ 310,758 3.93 % $ 296,001 3.89 %
Less: Tax equivalent adjustment 4,910 6,477
Net interest income and net interest margin - ties to Statements of Comprehensive Income $ 305,848 3.87 % $ 289,524 3.80 %
 
1 Annualized for all partial-year periods.

2 Interest income includes $2.1 million and $3.0 million for the first nine months 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 nine months ended: At or for the three months ended:
June 30, June 30, June 30, March 31, December 31, September 30, June 30,
2018 2017 2018 2018 2017 2017 2017
(dollars in thousands except share and per share amounts)
Adjusted net income and adjusted earnings per common share:
Net income - GAAP $ 115,636 $ 107,125 $ 45,874 $ 40,532 $ 29,230 $ 37,662 $ 35,060
Add: Acquisition expenses, net of tax 440
Add: Deferred taxes revaluation 13,586         13,586      
Adjusted net income $ 129,222   $ 107,565   $ 45,874   $ 40,532   $ 42,816   $ 37,662   $ 35,060  
 
Weighted average diluted common shares outstanding 59,134,635 59,065,402 59,170,058 59,146,117 59,087,729 59,914,144 59,130,632
Earnings per common share - diluted $ 1.96 $ 1.81 $ 0.78 $ 0.69 $ 0.49 $ 0.64 $ 0.59
Adjusted earnings per common share - diluted $ 2.19 $ 1.82 $ 0.78 $ 0.69 $ 0.72 $ 0.64 $ 0.59
 
Tangible net income and return on average tangible common equity:
Net income - GAAP $ 115,636 $ 107,125 $ 45,874 $ 40,532 $ 29,230 $ 37,662 $ 35,060
Add: Amortization of intangible assets, net of tax 1,117   1,663   366   376   376   380   488  
Tangible net income $ 116,753   $ 108,788   $ 46,240   $ 40,908   $ 29,606   $ 38,042   $ 35,548  
 
Average common equity $ 1,775,767 $ 1,689,491 $ 1,796,066 $ 1,770,117 $ 1,761,127 $ 1,740,429 $ 1,715,460
Less: Average goodwill and other intangible assets 747,718   749,667   747,294   747,716   748,144   748,571   749,074  
Average tangible common equity $ 1,028,049   $ 939,824   $ 1,048,772   $ 1,022,401   $ 1,012,983   $ 991,858   $ 966,386  
Return on average common equity * 8.7 % 8.5 % 10.2 % 9.3 % 6.6 % 8.6 % 8.2 %
Return on average tangible common equity ** 15.2 % 15.5 % 17.7 % 16.2 % 11.6 % 15.2 % 14.8 %
 
* 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 $ 305,848 $ 289,524 $ 104,672 $ 100,553 $ 100,622 $ 99,672 $ 96,888
Add: Tax equivalent adjustment 4,910   6,477   1,729   1,616   1,565   2,122   2,154  
Net interest income (FTE) 310,758 296,001 106,401 102,169 102,187 101,794 99,042
Add: Current realized derivative gain (loss) (4,946 ) (11,681 ) (830 ) (1,640 ) (2,476 ) (2,714 ) (3,320 )
Adjusted net interest income (FTE) $ 305,812   $ 284,320   $ 105,571   $ 100,529   $ 99,711   $ 99,080   $ 95,722  
 
Average interest-earning assets $ 10,577,420 $ 10,185,187 $ 10,748,078 $ 10,571,300 $ 10,412,882 $ 10,283,401 $ 10,124,404
Net interest margin (FTE) * 3.93 % 3.89 % 3.97 % 3.92 % 3.89 % 3.93 % 3.92 %
Adjusted net interest margin (FTE) ** 3.87 % 3.73 % 3.94 % 3.86 % 3.80 % 3.82 % 3.79 %
 
* 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 $ 324,506 $ 293,483 $ 112,760 $ 106,811 $ 104,935 $ 102,998 $ 98,724
Add: Tax equivalent adjustment 4,910   6,477   1,729   1,616   1,565   2,122   2,154  
Interest income (FTE) 329,416 299,960 114,489 108,427 106,500 105,120 100,878
Add: Current realized derivative gain (loss) (4,946 ) (11,681 ) (830 ) (1,640 ) (2,476 ) (2,714 ) (3,320 )
Adjusted interest income (FTE) $ 324,470   $ 288,279   $ 113,659   $ 106,787   $ 104,024   $ 102,406   $ 97,558  
 
Average non ASC 310-30 loans $9,042,253 $8,532,650 $ 9,220,931 $ 9,064,899 $ 8,840,929 $ 8,728,514 $ 8,550,349
Yield (FTE) * 4.87 % 4.70 % 4.98 % 4.85 % 4.78 % 4.78 % 4.73 %
Adjusted yield (FTE) ** 4.80 % 4.52 % 4.94 % 4.78 % 4.67 % 4.65 % 4.58 %
 
* 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 $ 360,203 $ 337,998 $ 123,611 $ 119,295 $ 117,296 $ 114,412 $ 114,215
Add: Tax equivalent adjustment 4,910   6,477   1,729   1,616   1,565   2,122   2,154  
Total revenue (FTE) $ 365,113   $ 344,475   $ 125,340   $ 120,911   $ 118,861   $ 116,534   $ 116,369  
 
Noninterest expense $ 171,875 $ 161,312 $ 57,863 $ 59,144 $ 54,868 $ 55,332 $ 54,922
Less: Amortization of intangible assets 1,268   1,927   416   426   426   430   538  
Tangible noninterest expense $ 170,607   $ 159,385   $ 57,447   $ 58,718   $ 54,442   $ 54,902   $ 54,384  
Efficiency ratio * 46.7 % 46.3 % 45.8 % 48.6 % 45.8 % 47.1 % 46.7 %
 
* 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 $ 1,816,741 $ 1,732,983 $ 1,816,741 $ 1,788,698 $ 1,767,873 $ 1,755,000 $ 1,732,983
Less: Goodwill and other intangible assets 747,129   748,828   747,129   747,545   747,971   748,397   748,828  
Tangible common equity $ 1,069,612   $ 984,155   $ 1,069,612   $ 1,041,153   $ 1,019,902   $ 1,006,603   $ 984,155  
 
Total assets $ 12,009,048 $ 11,466,184 $ 12,009,048 $ 11,992,317 $ 11,806,581 $ 11,690,011 $ 11,466,184
Less: Goodwill and other intangible assets 747,129   748,828   747,129   747,545   747,971   748,397   748,828  
Tangible assets $ 11,261,919   $ 10,717,356   $ 11,261,919   $ 11,244,772   $ 11,058,610   $ 10,941,614   $ 10,717,356  
Tangible common equity to tangible assets 9.5 % 9.2 % 9.5 % 9.3 % 9.2 % 9.2 % 9.2 %
 
Tangible book value per share:
Total stockholders' equity $ 1,816,741 $ 1,732,983 $ 1,816,741 $ 1,788,698 $ 1,767,873 $ 1,755,000 $ 1,732,983
Less: Goodwill and other intangible assets 747,129   748,828   747,129   747,545   747,971   748,397   748,828  
Tangible common equity $ 1,069,612   $ 984,155   $ 1,069,612   $ 1,041,153   $ 1,019,902   $ 1,006,603   $ 984,155  
 
Common shares outstanding 58,911,563 58,761,597 58,911,563 58,896,189 58,896,189 58,834,066 58,761,597
Book value per share - GAAP $ 30.84 $ 29.49 $ 30.84 $ 30.37 $ 30.02 $ 29.83 $ 29.49
Tangible book value per share $ 18.16 $ 16.75 $ 18.16 $ 17.68 $ 17.32 $ 17.11 $ 16.75

Great Western Bancorp, Inc.
Media Contact:
Ann Nachtigal, 605-988-9217
ann.nachtigal@greatwesternbank.com
or
Investor Relations Contact:
Peter Chapman, 605-373-3198
peter.chapman@greatwesternbank.com

Source: Great Western Bancorp, Inc.