Great Western Bancorp, Inc. Announces Fiscal Year 2018 Fourth Quarter Financial Results; Strong Net Income Growth and Tangible Book Value Per Share1 in Fiscal Year 2018

Great Western Bancorp, Inc. (NYSE: GWB) today reported net income of $42.3 million, or $0.72 per diluted share, for the fourth quarter of fiscal year 2018, compared to net income of $45.9 million, or $0.78 per diluted share. Net income for fiscal year 2018 was $157.9 million, or $2.67 per diluted share, compared to $144.8 million, or $2.45 per diluted share. Adjusted net income¹ for fiscal year 2018, which excludes a nonrecurring charge to provision for income taxes, was $171.5 million, or $2.90 per diluted share, compared to $145.2 million, or $2.46 per diluted share.

"Even though the fourth quarter did have softer loan growth and some nonrecurring items impacting net interest margin, I am pleased with our results for fiscal year 2018," said Ken Karels, Chief Executive Officer and Chairperson of the Board. "We were able to deliver significant year-over-year growth including a 9.1% increase in net income, a 9.0% increase in diluted earnings per share and an 8.5% increase in tangible book value while maintaining a strong efficiency ratio."

Net Interest Income and Net Interest Margin²

Net interest income was $103.7 million for the quarter, a decrease of $2.7 million, or 2.6%. Higher loan interest income, driven by 0.8% growth in average loans outstanding and partially offset by a 7 basis point decrease in the yield on loans, was offset by higher interest expense associated with a 12 basis point increase in the cost of deposits.

Net interest margin was 3.79% and 3.97%, respectively, for the quarters ended September 30, 2018 and June 30, 2018. Adjusted net interest margin¹, which adjusts for the realized gain (loss) on interest rate swaps, was 3.77% and 3.94%, respectively, for the same periods. During the current quarter, net interest margin and adjusted net interest margin¹ were impacted by a reduction in interest on acquired loans of $2.0 million and a charge off of interest of $1.0 million. Excluding these two items, net interest margin and adjusted net interest margin¹ were 3.90% and 3.88%, respectively, or decreases of 7 and 6 basis points, respectively, from the prior quarter. The lower margins were primarily driven by the yield on loans, which excluding the two items above, increased 5 basis points to 5.15%, which was more than offset by the cost of deposits, which increased 12 basis points to 0.82%.

Total loans outstanding were $9.42 billion as of September 30, 2018, increases of $36.1 million, or 0.4%, for the quarter and $447.4 million, or 5.0%, for the fiscal year. The majority of the growth for the fiscal year occurred in the commercial real estate ("CRE") category of the portfolio, which grew by $504.5 million, mainly across the construction and development, non-owner and owner occupied segments, partially offset by a reduction of $95.3 million in the residential real estate category of the portfolio.

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.

Total deposits grew to $9.73 billion as of September 30, 2018, increases of $148.2 million, or 1.5%, for the quarter and $755.9 million, or 8.4%, for the fiscal year. Noninterest-bearing deposits were $1.84 billion, a 0.7% decrease for the fiscal year and interest-bearing deposits were $7.89 billion, a 10.8% increase for the fiscal year. FHLB and other borrowings decreased by $368.2 million, or 57.2%, for the fiscal year as a result of deposit funding being more cost effective.

Provision for Loan and Lease Losses and Asset Quality

Provision for loan and lease losses was $5.0 million for the quarter, an increase of $1.5 million. Net charge-offs for the quarter were $5.2 million, or 0.22% of average total loans on an annualized basis, with the majority of net charge-offs concentrated in the agriculture and CRE segments of the loan portfolio. The ratio of allowance for loan and lease losses ("ALLL") to total loans remained stable at 0.69% as of September 30, 2018.

Included within total loans are approximately $865.4 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 0.19% of total loans.

At September 30, 2018, loans graded "Watch" increased $67.3 million, or 24.4%, for the quarter while loans graded "Substandard" decreased $15.4 million, or 5.7%, for the quarter. The increase in "Watch" graded loans was primarily driven by a small number of agriculture relationships. The decrease in "Substandard" graded loans was primarily driven the transfer of one large CRE relationship to other repossessed property during the quarter. Nonaccrual loans were $143.2 million as of September 30, 2018, representing an increase of $15.9 million for the quarter. Total other repossessed property balances were $23.1 million as of September 30, 2018, an increase of $12.9 million, or 125.8%, due to the addition of one large property during the quarter.

Total credit-related charges increased compared to the previous comparable quarter and decreased compared to fiscal year 2017. A summary of total credit-related charges incurred during the current and prior comparable quarter and current and prior twelve-month period is presented below:

Noninterest Income

Noninterest income was $19.3 million, an increase of $0.3 million, or 1.7%, for the quarter. 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 $(0.3) million unfavorable change over the prior quarter. Service charges and other fees increased by $0.5 million primarily due to an increase in net overdraft and non-sufficient funds income.

Noninterest Expense

Total noninterest expense was $59.6 million, an increase of $1.7 million, or 2.9%, for the quarter. This increase was mainly driven by a $2.5 million increase in net loss on repossessed property, partially offset by a $1.4 million decrease in salaries and employee benefits. Net loss on repossessed property was higher during the quarter due to expenses related to the settlement of a single other repossessed property. Salaries and employee benefits decreased due to the prior quarter having more health insurance claims.

The efficiency ratio¹ was 48.1% for the quarter, an increase from 45.8%, due to higher expenses incurred during the quarter related to other repossessed property, a large reversal of interest income on nonaccrual loans and an increase in the cost of deposits.

Provision for Income Taxes

The provision for income taxes for the quarter ended September 30, 2018 was $14.4 million, reflecting an effective tax rate of 25.4%, compared to an effective tax rate of 26.3% for the prior quarter.

Capital

Tier 1 and total capital ratios were 12.0% and 13.0%, respectively, as of September 30, 2018, compared to 11.8% and 12.8%, respectively, as of June 30, 2018. The common equity tier 1 capital ratio and tier 1 leverage ratio were 11.3% and 10.7% as of September 30, 2018 compared to 11.0% and 10.6%, respectively, as of June 30, 2018. All regulatory capital ratios remain above regulatory minimums to be considered "well capitalized."

On October 25, 2018, the Company’s Board of Directors declared a dividend of $0.25 per common share payable on November 21, 2018 to stockholders of record as of close of business on November 9, 2018. The aggregate dividend payment will be approximately $14.7 million.

Business Outlook

"We are glad to report another strong year of financial results to our stockholders, especially the growth in diluted earnings per share and tangible book value accretion," added Karels. "While we have seen some pressure on our funding costs, we feel that this is manageable as we move into our fiscal 2019. We are positive about the talent we have recruited and the new locations opening in fiscal 2019. Also I would like to thank our employees for their contribution to a strong 2018."

Conference Call

Great Western Bancorp, Inc. will host a conference call to discuss its financial results for the fourth quarter of fiscal year 2018 on Thursday, October 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 November 8, 2018. To access the replay, dial (877) 344-7529 (U.S.) and use conference ID 10124515. International callers should dial (412) 317-0088 and enter the same conference ID number.

Annual Stockholder Meeting

The Company's Board of Directors has set the Great Western Bancorp, Inc. Annual Stockholder Meeting for Thursday, February 21, 2019. The meeting will commence at 9:00 a.m. Mountain Standard Time, at the Hyatt Regency Scottsdale Resort & Spa at Gainey Ranch, 7500 East Doubletree Ranch Road, Scottsdale, Arizona. The record date for determination of stockholders entitled to notice of, and to vote at, the Annual Stockholder Meeting is December 28, 2018.

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 June 30, 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.

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. 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.

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Great Western Bancorp, Inc.
Media Contact:
Ann Nachtigal, 605-988-9217
[email protected]
or
Investor Relations Contact:
Peter Chapman, 605-373-3198
[email protected]