Great Western Bancorp, Inc. Announces Fiscal Year 2018 Second Quarter Financial Results; Raises Dividend

Apr 26, 2018 07:00 am
SIOUX FALLS, S.D. -- 

Great Western Bancorp, Inc. (NYSE: GWB) today reported net income of $40.5 million, or $0.69 per diluted share, for the second quarter of fiscal year 2018, compared to net income of $29.2 million, or $0.49 per diluted share. Adjusted net income1, which excludes the deferred tax revaluation triggered by the Tax Cuts and Jobs Act of 2017, was $40.5 million, or $0.69 per diluted share, compared to $42.8 million, or $0.72 per diluted share.

"The second quarter of fiscal year 2018 was another solid quarter for Great Western," said Ken Karels, Chairman, President and Chief Executive Officer. "We continued to see good demand from our loan portfolio, mitigated the rising cost of deposits through increasing loan yields pricing, continued to manage expenses well and increased our dividend due to the peer leading return on capital from our business."

Net Interest Income and Net Interest Margin 2

Net interest income was steady at $102.2 million for both the second quarter of fiscal year 2018 and the prior quarter. Higher loan interest income, driven by 2.4% growth in average loans outstanding and a 10 basis point increase in the yield on loans, was offset by higher interest expense associated with a 9 basis point increase in the cost of deposits and a 12 basis point increase in the cost of borrowings.

Net interest margin was 3.92% and 3.89%, respectively, for the quarters ended March 31, 2018 and December 31, 2017. Adjusted net interest margin1, which adjusts for the realized gain (loss) on interest rate swaps, was 3.86% and 3.80%, respectively, for the same periods. The yield on interest-earning assets increased by 12 basis points and the cost of interest-bearing liabilities increased by 10 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 margin1 compared to net interest margin.

Total loans outstanding were $9.34 billion as of March 31, 2018, an increase of $172.9 million, or 1.9%, for the quarter, and 7.7% on an annualized basis. The majority of the growth during the quarter occurred in the commercial real estate ("CRE") segment of the portfolio, which increased by $172.1 million, including strong growth in non-owner-occupied CRE and construction loans. Commercial non-real estate loans increased by $71.9 million, which was partially offset by a decrease of $57.5 million in residential real estate.

Total deposits grew to $9.39 billion as of March 31, 2018, an increase of $362.8 million, or 4.0%, during the quarter. Noninterest-bearing deposits were $1.85 billion, a 4.0% decrease, for the quarter and interest-bearing deposits were $7.53 billion, a 6.2% increase for the quarter. FHLB and other borrowings decreased by $170.0 million, or 23.6%, as a result of deposit growth.

     
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.
 

Provision for Loan and Lease Losses and Asset Quality

Provision for loan and lease losses was $4.9 million for the second quarter of fiscal year 2018, an increase of $0.3 million, or 7.5%. Net charge-offs for the second quarter were $3.8 million, a decrease of $0.2 million, or 0.17% of average total loans on an annualized basis, with the majority of net charge-offs concentrated in the CRE, commercial non-real estate and agriculture segments of the loan portfolio. The ratio of allowance for loan and lease losses ("ALLL") to total loans remained stable at 0.70% at both March 31, 2018 and December 31, 2017.

Included within total loans are approximately $921.0 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 $7.5 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 0.25% of total loans.

At March 31, 2018, loans graded "Watch" and "Substandard" were relatively stable with modest increases of $7.4 million, or 2.6% and $3.7 million, or 1.5%, respectively. Nonaccrual loans were $131.3 million as of March 31, 2018, representing a decrease of $16.1 million during the quarter primarily driven by charge offs and transfers to other repossessed property. Total other repossessed property balances were $16.7 million as of March 31, 2018, an increase of $6.2 million, or 59.5% from historically low levels, due to three larger relationships moving into other repossessed property during the quarter.

Total credit-related charges increased compared to the previous quarter and decreased compared to the first six months of fiscal year 2017. 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)
                       
For the six months ended: For the three months ended:
 
March 31, March 31, March 31,

December 31,

March 31,
Item Included within F/S Line Item(s): 2018 2017 2018

2017

2017
(dollars in thousands)
Provision for loan and lease losses Provision for loan and lease losses $9,457 $11,058 $4,900 $4,557 $4,009
 
Net other repossessed property charges Net loss on repossessed property and other related expenses 1,214 1,056 1,000 214 397
 
Reversal (recovery) of interest income on nonaccrual loans Interest income on loans 911 (99) (157) 1,068 (25)
 
Loan fair value adjustment related to credit Net increase (decrease) in fair value of loans at fair value 320 289 1,358 (1,038) (251)
 

Total

$11,902 $12,304 $7,101 $4,801 $4,130
 

Noninterest Income

Noninterest income was $18.7 million for the second quarter of fiscal year 2018, an increase of $2.1 million, or 12.4%. Other noninterest income increased by $2.7 million, with the majority of this increase generated by a sign on bonus for a new contract offset by an estimated breakage cost on a prior contract included in noninterest expense as discussed below, partially offset by a $1.1 million reduction in service charges and other fees related to seasonality declines in net overdraft and non-sufficient funds income and crop insurance income in the current quarter. Also 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 $0.8 million favorable change over the prior quarter.

Noninterest Expense

Total noninterest expense was $59.1 million for the second quarter of fiscal year 2018, an increase of $4.3 million, or 7.8%. Within noninterest expense is the estimated breakage cost of $2.3 million, offset by a sign on bonus for a new contract within noninterest income. Excluding this item, noninterest expenses were $56.9 million, an increase of $2.0 million, or 3.7%. This increase was driven by salaries and employee benefits, which increased $0.8 million due to the previously announced living wage increases brought on by federal tax reform and annual merit increases in the current quarter, and a net loss on repossessed property and other related expenses, which were $0.8 million higher due to the settlement of a single other repossessed property.

The efficiency ratio1 was 48.6% for the quarter, an increase from 45.8%, as a result of a sign on bonus for a new contract offset by a one time breakage cost on a prior contract as discussed in noninterest revenue and expense above. This added approximately 0.8% to the efficiency ratio during the quarter.

Provision for Income Taxes

The provision for income taxes for the second fiscal quarter ended March 31, 2018 was $14.7 million, reflecting an effective tax rate of 26.6%, compared to an effective tax rate of 49.5% for the prior quarter. Excluding the nonrecurring deferred taxes adjustment related to federal tax reform, the prior quarter effective tax rate was 26.0%.

Capital

Tier 1 and total capital ratios were 11.5% and 12.5%, respectively, as of March 31, 2018, compared to 11.3% and 12.3%, respectively. The common equity tier 1 capital ratio was 10.7% as of March 31, 2018 compared to 10.5%. The tier 1 leverage ratio was 10.4% and 10.3% as of March 31, 2018 and December 31, 2017, respectively. All regulatory capital ratios remain above regulatory minimums to be considered "well capitalized."

On April 26, 2018, the Company’s Board of Directors declared a dividend of $0.25 per common share payable on May 23, 2018 to stockholders of record as of close of business on May 11, 2018. This represents a 25.0% increase compared to $0.20 the dividend declared in January 2018, which the Board of Directors felt was appropriate based on the impact of tax reform on earnings. The aggregate dividend payment will be approximately $14.7 million.

Business Outlook

"We remain very satisfied with the performance of our business and confident on performance for the remainder of the fiscal year," added Karels. "We see good loan pipelines and loan demand post the tax stimulus. We expect to see increased pressure on deposit pricing but will continue to mitigate this through increased asset pricing. We remain confident that we will see loan growth in the mid to high single digit range for the fiscal year."

Conference Call

Great Western Bancorp, Inc. will host a conference call to discuss its financial results for the second quarter of fiscal year 2018 on Thursday, April 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 May 10, 2018. To access the replay, dial (877) 344-7529 (U.S.) and use conference ID 10118626. International callers should dial (412) 317-0088 and enter the same conference ID number.

About Great Western Bancorp, Inc.

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

Forward-Looking Statements

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

                           
GREAT WESTERN BANCORP, INC.
Consolidated Financial Data (Unaudited)
 
At or for the six months ended: At or for the three months ended:
 
March 31, March 31, March 31,

December 31,

September 30,

June 30, March 31,
2018 2017 2018

2017

2017

2017 2017
(dollars in thousands, except share and per share amounts)
Operating Data:
Interest income (FTE) $ 235,368 $ 217,217 $ 118,849 $ 116,519 $ 115,185 $ 110,713 $ 108,420
Interest expense 31,011 20,257 16,680 14,332 13,391 11,671 10,494
Noninterest income 35,416 31,146 18,742 16,674 14,740 17,327 15,489
Noninterest expense 114,012 106,389 59,144 54,868 55,332 54,922 53,852
Provision for loan and lease losses 9,457 11,058 4,900 4,557 4,685 5,796 4,009
Net income 69,762 72,065 40,532 29,230 37,662 35,060 35,162
Adjusted net income ¹ $ 83,348 $ 72,505 $ 40,532 $ 42,816 $ 37,662 $ 35,060 $ 35,162
Common shares outstanding 58,896,189 58,760,517 58,896,189 58,896,189 58,834,066 58,761,597 58,760,517
Weighted average diluted common shares outstanding 59,116,923 59,032,787 59,146,117 59,087,729 58,914,144 59,130,632 59,073,669
Earnings per common share - diluted $ 1.18 $ 1.22 $ 0.69 $ 0.49 $ 0.64 $ 0.59 $ 0.60
Adjusted earnings per common share - diluted ¹ $ 1.41 $ 1.23 $ 0.69 $ 0.72 $ 0.64 $ 0.59 $ 0.60
 
Performance Ratios:
Net interest margin (FTE) ¹ ² 3.91 % 3.87 % 3.92 % 3.89 % 3.93 % 3.92 % 3.91 %
Adjusted net interest margin (FTE) ¹ ² 3.83 % 3.70 % 3.86 % 3.80 % 3.82 % 3.79 % 3.76 %
Return on average total assets ² 1.20 % 1.27 % 1.40 % 1.00 % 1.30 % 1.25 % 1.26 %
Return on average common equity ² 7.9 % 8.6 % 9.3 % 6.6 % 8.6 % 8.2 % 8.5 %
Return on average tangible common equity ¹ ² 13.9 % 15.9 % 16.2 % 11.6 % 15.2 % 14.8 % 15.4 %
Efficiency ratio ¹ 47.2 % 46.0 % 48.6 % 45.8 % 47.1 % 46.7 % 47.0 %
 
Capital:
Tier 1 capital ratio 11.5 % 11.6 % 11.5 % 11.3 % 11.4 % 11.5 % 11.6 %
Total capital ratio 12.5 % 12.7 % 12.5 % 12.3 % 12.5 % 12.6 % 12.7 %
Tier 1 leverage ratio 10.4 % 10.0 % 10.4 % 10.3 % 10.3 % 10.3 % 10.0 %
Common equity tier 1 ratio 10.7 % 10.8 % 10.7 % 10.5 % 10.7 % 10.7 % 10.8 %
Tangible common equity / tangible assets ¹ 9.3 % 9.0 % 9.3 % 9.2 % 9.2 % 9.2 % 9.0 %
Book value per share - GAAP $ 30.37 $ 29.05 $ 30.37 $ 30.02 $ 29.83 $ 29.49 $ 29.05
Tangible book value per share ¹ $ 17.68 $ 16.29 $ 17.68 $ 17.32 $ 17.11 $ 16.75 $ 16.29
 
Asset Quality:
Nonaccrual loans $ 131,274 $ 127,675 $ 131,274 $ 147,325 $ 138,312 $ 123,641 $ 127,675
Other repossessed property $ 16,726 $ 6,994 $ 16,726 $ 10,486 $ 8,985 $ 9,051 $ 6,994
Nonaccrual loans / total loans 1.41 % 1.47 % 1.41 % 1.61 % 1.54 % 1.41 % 1.47 %
Net charge-offs (recoveries) $ 7,821 $ 13,015 $ 3,784 $ 4,037 $ 5,394 $ 4,267 $ 8,091
Net charge-offs (recoveries) / average total loans ² 0.17 % 0.30 % 0.17 % 0.18 % 0.24 % 0.20 % 0.38 %
Allowance for loan and lease losses / total loans 0.70 % 0.72 % 0.70 % 0.70 % 0.71 % 0.73 % 0.72 %
Watch-rated loans $ 294,873 $ 324,457 $ 294,873 $ 287,468 $ 311,611 $ 298,963 $ 324,457
 

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,

2018

2017

2018

2017

2017

2017 2017
(dollars in thousands)
Interest income
Loans $ 217,674 $ 199,413 $ 109,993 $ 107,680 $ 106,277 $ 101,593 $ 99,481
Investment securities 14,055 12,916 7,013 7,043 6,592 6,803 6,538
Federal funds sold and other   458     565     227     231     194     163     219  
Total interest income 232,187 212,894 117,233 114,954 113,063 108,559 106,238
Interest expense
Deposits 23,656 15,118 12,658 10,998 10,439 9,478 7,829
FHLB advances and other borrowings 4,978 2,953 2,815 2,164 1,787 1,080 1,567
Subordinated debentures and subordinated notes payable   2,377     2,186     1,207     1,170     1,165     1,113     1,098  
Total interest expense   31,011     20,257     16,680     14,332     13,391     11,671     10,494  
Net interest income 201,176 192,637 100,553 100,622 99,672 96,888 95,744
Provision for loan and lease losses   9,457     11,058     4,900     4,557     4,685     5,796     4,009  
Net interest income after provision for loan and lease losses   191,719     181,579     95,653     96,065     94,987     91,092     91,735  
Noninterest income
Service charges and other fees 25,224 27,410 12,047 13,178 13,742 14,572 13,574
Wealth management fees 4,519 4,683 2,335 2,185 2,002 2,433 2,429
Mortgage banking income, net 2,826 4,302 1,166 1,660 1,798 1,828 1,640
Net (loss) gain on sale of securities (9 ) 44 (8 ) (1 ) 32 — 44
Net (decrease) increase in fair value of loans at fair value (23,502 ) (69,218 ) (14,838 ) (8,665 ) (2,073 ) 6,060 (5,216 )
Net realized and unrealized gain (loss) on derivatives 21,509 60,568 14,282 7,227 (1,581 ) (9,088 ) 1,592
Other   4,849     3,357     3,758     1,090     820     1,522     1,426  
Total noninterest income 35,416 31,146 18,742 16,674 14,740 17,327 15,489
Noninterest expense
Salaries and employee benefits 66,539 64,004 33,672 32,868 31,263 32,868 32,370
Data processing and communication 16,074 13,595 9,190 6,884 7,324 7,370 6,879
Occupancy and equipment 10,138 9,946 5,290 4,848 5,006 4,866 5,123
Professional fees 8,267 6,394 4,027 4,240 4,503 4,141 3,559
Advertising 2,181 1,970 1,121 1,059 954 1,059 995
Net loss on repossessed property and other related expenses 1,214 1,056 1,000 214 541 152 397
Amortization of core deposits and other intangibles 852 1,389 426 426 430 538 550
Acquisition expenses — 710 — — — — —
Other   8,747     7,325     4,418     4,329     5,311     3,928     3,979  
Total noninterest expense   114,012     106,389     59,144     54,868     55,332     54,922     53,852  
Income before income taxes 113,123 106,336 55,251 57,871 54,395 53,497 53,372
Provision for income taxes   43,361     34,271     14,719     28,641     16,733     18,437     18,210  
Net income $ 69,762   $ 72,065   $ 40,532   $ 29,230   $ 37,662   $ 35,060   $ 35,162  
 
                   
GREAT WESTERN BANCORP, INC.
Summarized Consolidated Balance Sheet (Unaudited)
 
As of
March 31, 2018 December 31, 2017 September 30, 2017 June 30, 2017 March 31, 2017
(dollars in thousands)
Assets
Cash and cash equivalents $ 371,749 $ 297,596 $ 360,396 $ 327,901 $ 335,929
Investment securities 1,307,598 1,366,641 1,367,960 1,366,442 1,350,893
Total loans 9,338,306 9,165,373 8,968,553 8,791,852 8,697,426
Allowance for loan and lease losses   (65,139 )   (64,023 )   (63,503 )   (64,214 )   (62,685 )
Loans, net 9,273,167 9,101,350 8,905,050 8,727,638 8,634,741
Goodwill 739,023 739,023 739,023 739,023 739,023
Other assets   300,780     301,971     317,582     305,180     296,255  
Total assets $ 11,992,317   $ 11,806,581   $ 11,690,011   $ 11,466,184   $ 11,356,841  
 
Liabilities and stockholders' equity
Noninterest-bearing deposits $ 1,854,734 $ 1,932,080 $ 1,856,126 $ 1,915,560 $ 2,026,627
Interest-bearing deposits   7,532,233     7,092,105     7,121,487     7,043,542     7,065,291  
Total deposits 9,386,967 9,024,185 8,977,613 8,959,102 9,091,918
Securities sold under agreements to repurchase 103,291 116,884 132,636 123,851 124,472
FHLB advances and other borrowings 551,003 721,009 643,214 471,719 264,624
Other liabilities   162,358     176,630     181,548     178,529     168,966  
Total liabilities 10,203,619 10,038,708 9,935,011 9,733,201 9,649,980
Stockholders' equity   1,788,698     1,767,873     1,755,000     1,732,983     1,706,861  
Total liabilities and stockholders' equity $ 11,992,317   $ 11,806,581   $ 11,690,011   $ 11,466,184   $ 11,356,841  
 
                   
GREAT WESTERN BANCORP, INC.
Loan Portfolio Summary (Unaudited)
 
As of Fiscal year-to-date:
 
March 31,

December 31,

September 30,

Change Change
2018

2017

2017

($) (%)
(dollars in thousands)
Construction and development $ 721,340 $ 622,985 $ 538,736 $ 182,604 33.9 %
Owner-occupied CRE 1,341,034 1,317,585 1,219,523 121,511 10.0 %
Non-owner-occupied CRE 2,077,424 2,035,987 2,025,326 52,098 2.6 %
Multifamily residential real estate   327,980     319,139     341,220     (13,240 ) (3.9 )%
Commercial real estate 4,467,778 4,295,696 4,124,805 342,973 8.3 %
Agriculture 2,177,020 2,177,383 2,122,138 54,882 2.6 %
Commercial non-real estate 1,767,587 1,695,731 1,718,914 48,673 2.8 %
Residential real estate 866,982 924,439 932,892 (65,910 ) (7.1 )%
Consumer 55,190 62,872 66,559 (11,369 ) (17.1 )%
Other ¹   41,816     45,805     43,207     (1,391 ) (3.2 )%
Total unpaid principal balance 9,376,373 9,201,926 9,008,515 367,858 4.1 %
Less: Unamortized discount on acquired loans and unearned net deferred fees and costs and loans in process   (38,067 )   (36,553 )   (39,962 )   1,895   4.7 %
Total loans $ 9,338,306   $ 9,165,373   $ 8,968,553   $ 369,753   4.1 %
 
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, 2018 December 31, 2017 March 31, 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 $ 58,943 $ 227 1.56 % $ 65,935 $ 231 1.39 % $ 109,737 $ 219 0.81 %
Investment securities 1,365,152 7,013 2.08 % 1,416,179 7,043 1.97 % 1,382,743 6,538 1.92 %

Non ASC 310-30 loans, net ²

9,064,899 108,427 4.85 % 8,840,929 106,500 4.78 % 8,531,652 99,352 4.72 %
ASC 310-30 loans, net   82,306   3,182 15.68 %   89,839   2,745 12.12 %   120,743   2,311 7.76 %
Loans, net   9,147,205   111,609 4.95 %   8,930,768   109,245 4.85 %   8,652,395   101,663 4.77 %
Total interest-earning assets 10,571,300 118,849 4.56 % 10,412,882 116,519 4.44 % 10,144,875 108,420 4.33 %
Noninterest-earning assets   1,155,481   1,176,658   1,146,196
Total assets $ 11,726,781 $ 118,849 4.11 % $ 11,589,540 $ 116,519 3.99 % $ 11,291,071 $ 108,420 3.89 %
 
Liabilities and Stockholders' Equity
Noninterest-bearing deposits $ 1,786,059 $ 1,844,490 $ 1,825,174
Interest-bearing deposits 5,929,757 $ 9,490 0.65 % 5,887,195 $ 8,291 0.56 % 5,623,676 $ 5,759 0.42 %
Time deposits   1,315,209   3,168 0.98 %   1,267,300   2,707 0.85 %   1,286,203   2,070 0.65 %
Total deposits 9,031,025 12,658 0.57 % 8,998,985 10,998 0.48 % 8,735,053 7,829 0.36 %
Securities sold under agreements to repurchase 107,921 83 0.31 % 125,060 95 0.30 % 117,970 98 0.34 %
FHLB advances and other borrowings 652,787 2,732 1.70 % 519,575 2,069 1.58 % 571,338 1,469 1.04 %
Subordinated debentures and subordinated notes payable   108,358   1,207 4.52 %   108,316   1,170 4.28 %   108,196   1,098 4.12 %
Total borrowings   869,066   4,022 1.88 %   752,951   3,334 1.76 %   797,504   2,665 1.36 %
Total interest-bearing liabilities 9,900,091 $ 16,680 0.68 % 9,751,936 $ 14,332 0.58 % 9,532,557 $ 10,494 0.45 %
Noninterest-bearing liabilities 56,573 76,477 71,744
Stockholders' equity   1,770,117   1,761,127   1,686,770
Total liabilities and stockholders' equity $ 11,726,781 $ 11,589,540 $ 11,291,071
Net interest spread 3.43 % 3.41 % 3.44 %
Net interest income and net interest margin (FTE) $ 102,169 3.92 % $ 102,187 3.89 % $ 97,926 3.91 %
Less: Tax equivalent adjustment   1,616   1,565   2,182
Net interest income and net interest margin - ties to Statements of Comprehensive Income $ 100,553 3.86 % $ 100,622 3.83 % $ 95,744 3.83 %
 
1 Annualized for all partial-year periods.

2 Interest income includes $0.6 million and $1.0 million for the second 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 six months ended:
March 31, 2018 March 31, 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 $ 62,439 $ 458 1.47 % $ 188,221 $ 565 0.60 %
Investment securities 1,390,665 14,055 2.03 % 1,380,101 12,916 1.88 %
Non ASC 310-30 loans, net ³ 8,952,914 214,927 4.81 % 8,523,800 199,083 4.68 %
ASC 310-30 loans, net   86,073   5,928 13.81 %   123,458   4,653 7.56 %
Loans, net   9,038,987   220,855 4.90 %   8,647,258   203,736 4.73 %
Total interest-earning assets 10,492,091 235,368 4.50 % 10,215,580 217,217 4.26 %
Noninterest-earning assets   1,166,069   1,149,109
Total assets $ 11,658,160 $ 235,368 4.05 % $ 11,364,689 $ 217,217 3.83 %
 
Liabilities and Stockholders' Equity
Noninterest-bearing deposits $ 1,815,274 $ 1,808,617
Interest-bearing deposits 5,908,476 $ 17,781 0.60 % 5,585,894 $ 10,888 0.39 %
Time deposits   1,291,255   5,875 0.91 %   1,317,161   4,230 0.64 %
Total deposits 9,015,005 23,656 0.53 % 8,711,672 15,118 0.35 %
Securities sold under agreements to repurchase 116,490 178 0.31 % 127,188 212 0.33 %
FHLB advances and other borrowings 586,181 4,800 1.64 % 644,079 2,741 0.85 %
Subordinated debentures and subordinated notes payable   108,337   2,377 4.40 %   109,579   2,186 4.00 %
Total borrowings   811,008   7,355 1.82 %   880,846   5,139 1.17 %
Total interest-bearing liabilities 9,826,013 $ 31,011 0.63 % 9,592,518 $ 20,257 0.42 %
Noninterest-bearing liabilities 66,525 95,665
Stockholders' equity   1,765,622   1,676,506
Total liabilities and stockholders' equity $ 11,658,160 $ 11,364,689
Net interest spread 3.42 % 3.41 %
Net interest income and net interest margin (FTE) ¹ $ 204,357 3.91 % $ 196,960 3.87 %
Less: Tax equivalent adjustment   3,181   4,323
Net interest income and net interest margin - ties to Statements of Comprehensive Income $ 201,176 3.85 % $ 192,637 3.78 %
 
1 Annualized for all partial-year periods.

2 Interest income includes $1.2 million and $2.3 million for the first six 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 six months ended: At or for the three months ended:
 
March 31, March 31, March 31, December 31,

September 30,

June 30, March 31,
2018 2017 2018 2017

2017

2017 2017
(dollars in thousands except share and per share amounts)
Adjusted net income and adjusted earnings per common share:
Net income - GAAP $ 69,762 $ 72,065 $ 40,532 $ 29,230 $ 37,662 $ 35,060 $ 35,162
Add: Acquisition expenses, net of tax — 440 — — — — —
Add: Deferred taxes revaluation   13,586     —     —     13,586     —     —     —  
Adjusted net income $ 83,348   $ 72,505   $ 40,532   $ 42,816   $ 37,662   $ 35,060   $ 35,162  
 
Weighted average diluted common shares outstanding 59,116,923 59,032,787 59,146,117 59,087,729 58,914,144 59,130,632 59,073,669
Earnings per common share - diluted $ 1.18 $ 1.22 $ 0.69 $ 0.49 $ 0.64 $ 0.59 $ 0.60
Adjusted earnings per common share - diluted $ 1.41 $ 1.23 $ 0.69 $ 0.72 $ 0.64 $ 0.59 $ 0.60
 
Tangible net income and return on average tangible common equity:
Net income - GAAP $ 69,762 $ 72,065 $ 40,532 $ 29,230 $ 37,662 $ 35,060 $ 35,162
Add: Amortization of intangible assets, net of tax   751     1,176     376     376     380     488     500  
Tangible net income $ 70,513   $ 73,241   $ 40,908   $ 29,606   $ 38,042   $ 35,548   $ 35,662  
 
Average common equity $ 1,765,622 $ 1,676,506 $ 1,770,117 $ 1,761,127 $ 1,740,429 $ 1,715,460 $ 1,686,770
Less: Average goodwill and other intangible assets   747,930     749,964     747,716     748,144     748,571     749,074     749,638  
Average tangible common equity $ 1,017,692   $ 926,542   $ 1,022,401   $ 1,012,983   $ 991,858   $ 966,386   $ 937,132  
Return on average common equity * 7.9 % 8.6 % 9.3 % 6.6 % 8.6 % 8.2 % 8.5 %
Return on average tangible common equity ** 13.9 % 15.9 % 16.2 % 11.6 % 15.2 % 14.8 % 15.4 %
 
* 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 $ 201,176 $ 192,637 $ 100,553 $ 100,622 $ 99,672 $ 96,888 $ 95,744
Add: Tax equivalent adjustment   3,181     4,323     1,616     1,565     2,122     2,154     2,182  
Net interest income (FTE) 204,357 196,960 102,169 102,187 101,794 99,042 97,926
Add: Current realized derivative gain (loss)   (4,116 )   (8,361 )   (1,640 )   (2,476 )   (2,714 )   (3,320 )   (3,875 )
Adjusted net interest income (FTE) $ 200,241   $ 188,599   $ 100,529   $ 99,711   $ 99,080   $ 95,722   $ 94,051  
 
Average interest-earning assets $ 10,492,091 $ 10,215,580 $ 10,571,300 $ 10,412,882 $ 10,283,401 $ 10,124,404 $ 10,144,875
Net interest margin (FTE) * 3.91 % 3.87 % 3.92 % 3.89 % 3.93 % 3.92 % 3.91 %
Adjusted net interest margin (FTE) ** 3.83 % 3.70 % 3.86 % 3.80 % 3.82 % 3.79 % 3.76 %
 
* 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 $ 211,746 $ 194,760 $ 106,811 $ 104,935 $ 102,998 $ 98,724 $ 97,170
Add: Tax equivalent adjustment   3,181     4,323     1,616     1,565     2,122     2,154     2,182  
Interest income (FTE) 214,927 199,083 108,427 106,500 105,120 100,878 99,352
Add: Current realized derivative gain (loss)   (4,116 )   (8,361 )   (1,640 )   (2,476 )   (2,714 )   (3,320 )   (3,875 )
Adjusted interest income (FTE) $ 210,811   $ 190,722   $ 106,787   $ 104,024   $ 102,406   $ 97,558   $ 95,477  
 
Average non ASC 310-30 loans $ 8,952,914 $ 8,523,800 $ 9,064,899 $ 8,840,929 $ 8,728,514 $ 8,550,349 $ 8,531,652
Yield (FTE) * 4.81 % 4.68 % 4.85 % 4.78 % 4.78 % 4.73 % 4.72 %
Adjusted yield (FTE) ** 4.72 % 4.49 % 4.78 % 4.67 % 4.65 % 4.58 % 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 $ 236,592 $ 223,783 $ 119,295 $ 117,296 $ 114,412 $ 114,215 $ 111,233
Add: Tax equivalent adjustment   3,181     4,323     1,616     1,565     2,122     2,154     2,182  
Total revenue (FTE) $ 239,773   $ 228,106   $ 120,911   $ 118,861   $ 116,534   $ 116,369   $ 113,415  
 
Noninterest expense $ 114,012 $ 106,389 $ 59,144 $ 54,868 $ 55,332 $ 54,922 $ 53,852
Less: Amortization of intangible assets   852     1,389     426     426     430     538     550  
Tangible noninterest expense $ 113,160   $ 105,000   $ 58,718   $ 54,442   $ 54,902   $ 54,384   $ 53,302  
Efficiency ratio * 47.2 % 46.0 % 48.6 % 45.8 % 47.1 % 46.7 % 47.0 %
 
* 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 $ 1,788,698 $ 1,706,861 $ 1,788,698 $ 1,767,873 $ 1,755,000 $ 1,732,983 $ 1,706,861
Less: Goodwill and other intangible assets   747,545     749,366     747,545     747,971     748,397     748,828     749,366  
Tangible common equity $ 1,041,153   $ 957,495   $ 1,041,153   $ 1,019,902   $ 1,006,603   $ 984,155   $ 957,495  
 
Total assets $ 11,992,317 $ 11,356,841 $ 11,992,317 $ 11,806,581 $ 11,690,011 $ 11,466,184 $ 11,356,841
Less: Goodwill and other intangible assets   747,545     749,366     747,545     747,971     748,397     748,828     749,366  
Tangible assets $ 11,244,772   $ 10,607,475   $ 11,244,772   $ 11,058,610   $ 10,941,614   $ 10,717,356   $ 10,607,475  
Tangible common equity to tangible assets 9.3 % 9.0 % 9.3 % 9.2 % 9.2 % 9.2 % 9.0 %
 
Tangible book value per share:
Total stockholders' equity $ 1,788,698 $ 1,706,861 $ 1,788,698 $ 1,767,873 $ 1,755,000 $ 1,732,983 $ 1,706,861
Less: Goodwill and other intangible assets   747,545     749,366     747,545     747,971     748,397     748,828     749,366  
Tangible common equity $ 1,041,153   $ 957,495   $ 1,041,153   $ 1,019,902   $ 1,006,603   $ 984,155   $ 957,495  
 
Common shares outstanding 58,896,189 58,760,517 58,896,189 58,896,189 58,834,066 58,761,597 58,760,517
Book value per share - GAAP $ 30.37 $ 29.05 $ 30.37 $ 30.02 $ 29.83 $ 29.49 $ 29.05
Tangible book value per share $ 17.68 $ 16.29 $ 17.68 $ 17.32 $ 17.11 $ 16.75 $ 16.29
 

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