Great Western Bancorp, Inc. (NYSE: GWB) today reported net income of $44.5 million, or $0.78 per diluted share, for the second quarter of fiscal year 2019, compared to net income of $45.8 million, or $0.79 per diluted share, for the first quarter of fiscal year 2019 and $40.5 million, or $0.69 per diluted share, for the second quarter of fiscal year 2018, a 13.0% increase.

"We are pleased with the progress we have made this quarter. Our earnings increased over the prior year, and our return on assets and equity remained strong," said Ken Karels, Chief Executive Officer and Chairperson of the Board. "In addition, asset quality metrics continue to trend in line with expectations during the quarter and our agriculture loan portfolio remaining steady."

Net Interest Income and Net Interest Margin2

Net interest income was $104.9 million for the quarter, a decrease of $1.5 million, or 1.4%. The decrease resulted from higher interest expense associated with the cost of deposits, partially offset by a higher yield on loans and investments.

Net interest margin was 3.75% and 3.81%, respectively, for the quarters ended March 31, 2019 and December 31, 2018. Adjusted net interest margin1, which adjusts for the realized gain (loss) on interest rate swaps, was 3.76% and 3.81%, respectively, for the same periods. The lower margins were primarily driven by the cost of deposits, which increased 13 basis points to 1.08%, partially offset by the yield on loans, which increased 6 basis points to 5.23%, and the yield on the investment portfolio, which increased 8 basis points to 2.52%. In addition, an increase in balance sheet liquidity and reversal of interest income on nonaccrual loans reduced adjusted net interest margin1 by 3 basis points during the quarter.

Total loans outstanding were $9.77 billion as of March 31, 2019, a marginal increase from the prior quarter, and growth of $355.0 million, or 3.8%, for fiscal year-to-date. During the quarter the commercial real estate ("CRE") category of the portfolio grew by $139.5 million, or 2.8%, mainly in the non-owner-occupied segment, partially offset by a reduction of $112.9 million, or 5.1%, in the agriculture category of the portfolio, which reflected the seasonal draws that were repaid in the second quarter of 2019 and one relationship moving into other repossessed property.

Total deposits grew to $10.47 billion as of March 31, 2019, an increase of $355.1 million, or 3.5%, for the quarter and $734.9 million, or 7.6%, for fiscal year-to-date. During the quarter, deposit inflows were driven by seasonal inflows. Interest-bearing deposits were $8.64 billion, a 5.0% increase for the quarter, and noninterest-bearing deposits were $1.82 billion, a 2.9% decrease for the quarter. FHLB and other borrowings decreased by $135.0 million, or 32.9%, for the quarter.

1 This is a non-GAAP financial measure management believes is helpful to understanding trends in the business that may not be fully apparent based only on the most comparable GAAP financial measure. Further information on this financial measure and a reconciliation to the most comparable GAAP financial 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 $7.7 million for the quarter, an increase of $2.5 million. Net charge-offs for the quarter were $5.9 million, or 0.25% of average total loans on an annualized basis, with the majority of net charge-offs concentrated in the agriculture segment of the loan portfolio. The ratio of allowance for loan and lease losses ("ALLL") to total loans increased to 0.70% as of March 31, 2019 from 0.68% as of the prior quarter.

Included within total loans are approximately $835.8 million of loans for which management has elected the fair value option. These loans are excluded from the ALLL process, but management has estimated that approximately $6.4 million of the fair value adjustment for these loans relates to credit risk, or 0.07% of total loans. Finally, total purchase discount remaining on all acquired loans equates to 0.16% of total loans.

Nonaccrual loans were $121.6 million as of March 31, 2019, representing a decrease of $17.3 million for the quarter. Loans graded "Watch" decreased $20.5 million, or 6.4%, for the quarter, while loans graded "Substandard" increased $6.4 million, or 2.5%. Total other repossessed property balances were $32.5 million as of March 31, 2019, an increase of $10.2 million, or 46.0%, due to one relationship moving into other repossessed property during the quarter. In March and early April 2019 there were isolated areas of flooding reported within parts of the Midwest in which certain of our agricultural borrowers conduct their operations. We have reviewed loan exposures in these areas as part of our normal quarterly review process and at this time have not identified a material decline in asset quality or losses associated with these loans. We will continue to monitor our loans in these flood affected areas.

Total credit-related charges increased compared to the comparable quarter and the first six months of fiscal year 2018 and decreased compared to the previous quarter . A summary of total credit-related charges incurred during the current and comparable six month periods and current, prior and comparable quarters is presented below:

GREAT WESTERN BANCORP, INC.
Summary of Credit-Related Charges (Unaudited)
           
For the six months ended: For the three months ended:
Item Included within F/S Line Item(s): March 31, 2019   March 31, 2018 March 31, 2019     December 31, 2018     March 31, 2018
(dollars in thousands)
Provision for loan and lease losses Provision for loan and lease losses $ 12,888 $ 9,457 $ 7,673 $ 5,215 $ 4,900
Net other repossessed property charges Net loss on repossessed property and other related expenses 3,467 1,214 404 3,063 1,000
Reversal (recovery) of interest income on nonaccrual loans Interest income on loans 296 911 337

(41

) (157 )
Loan fair value adjustment related to credit Net increase (decrease) in fair value of loans at fair value 762   320 (422 )   1,184     1,358  
Total $ 17,413   $ 11,902 $ 7,992     $ 9,421     $ 7,101  
 

Noninterest Income

Noninterest income was $18.2 million, an increase of $1.5 million, or 9.0%, for the quarter. Included within noninterest income is the net change in fair value of loans for which the Company has elected the fair value option and the net realized and unrealized gain (loss) of the related derivatives which generated a $2.1 million favorable change over the prior quarter. This was partially offset by a $1.5 million decrease in service charges and other fees. The decrease in service charges and other fees was predominately due to a decrease in net overdraft and non-sufficient funds fee income.

Noninterest Expense

Total noninterest expense was $56.6 million, a decrease of $0.5 million, or 0.9%, for the quarter. The majority of the decrease was driven by a $2.7 million decrease in net loss on repossessed property and other related expenses, partially offset by an increase of $0.7 million in data processing and communication expense and an increase of $0.7 million in professional fees.

The efficiency ratio1 was 45.6% for the quarter, a decrease from 46.1%.

Provision for Income Taxes

The provision for income taxes for the quarter ended March 31, 2019 was $12.9 million, reflecting an effective tax rate of 22.5%, compared to an effective tax rate of 22.8%.

Capital

Tier 1 and total capital ratios were 11.4% and 12.4%, respectively, as of March 31, 2019, compared to 11.1% and 12.1%. The common equity tier 1 capital ratio and tier 1 leverage ratio were 10.7% and 10.2%, respectively, as of March 31, 2019 compared to 10.4% and 10.1%. All regulatory capital ratios remain above regulatory minimums to be considered "well capitalized."

On April 25, 2019, the Company’s Board of Directors declared a dividend of $0.30 per common share payable on May 24, 2019 to stockholders of record as of close of business on May 10, 2019. This represents an increase of 20% compared to the most recent quarterly dividend of $0.25 per common share. The aggregate dividend payment will be approximately $17.1 million.

Business Outlook

"We are positive about the second half of our fiscal year and remain confident that loan pipelines support our full year forecast of mid single digit loan growth," added Karels. "The current yield curve provides some challenge to new loan pricing, but we will continue to balance this with pursuing quality credits with strong underwriting criteria and managing our cost of deposits."

Conference Call

Great Western Bancorp, Inc. will host a conference call to discuss its financial results for the second quarter of fiscal year 2019 on Thursday, April 25, 2019 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 9, 2019. To access the replay, dial (877) 344-7529 (U.S.) and use conference ID 10130047. 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 most recently ended fiscal year, and in other periodic filings with the Securities and Exchange Commission. 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,
2019   2018 2019   2018   2018   2018   2018
(dollars in thousands, except share and per share amounts)
Operating Data:
Interest income (FTE) $ 268,879 $ 235,368 $ 135,328 $ 133,551 $ 126,921 $ 126,146 $ 118,849
Interest expense 57,578 31,011 30,411 27,167 23,244 19,745 16,680
Noninterest income 34,943 35,416 18,223 16,720 19,255 18,939 18,742
Noninterest expense 113,686 114,012 56,580 57,106 59,550 57,863 59,144
Provision for loan and lease losses 12,888 9,457 7,673 5,215 5,015 3,515 4,900
Net income 90,297 69,762 44,511 45,786 42,281 45,874 40,532
Adjusted net income ¹ $ 90,297 $ 83,348 $ 44,511 $ 45,786 $ 42,281 $ 45,874 $ 40,532
Common shares outstanding 56,938,435 58,896,189 56,938,435 56,938,435 58,917,147 58,911,563 58,896,189
Weighted average diluted common shares outstanding 57,556,984 59,116,923 57,074,674 58,039,292 59,122,699 59,170,058 59,146,117
Earnings per common share - diluted $ 1.57 $ 1.18 $ 0.78 $ 0.79 $ 0.72 $ 0.78 $ 0.69
Adjusted earnings per common share - diluted ¹ $ 1.57 $ 1.41 $ 0.78 $ 0.79 $ 0.72 $ 0.78 $ 0.69
Performance Ratios:
Net interest margin (FTE) ¹ ² 3.78 % 3.91 % 3.75 % 3.81 % 3.79 % 3.97 % 3.92 %
Adjusted net interest margin (FTE) ¹ ² 3.79 % 3.83 % 3.76 % 3.81 % 3.77 % 3.94 % 3.86 %
Return on average total assets ²

1.46

%

1.20

%

1.44

%

1.48

%

1.40

%

1.55

%

1.40

%

Return on average common equity ²

10.0

%

7.9

%

9.9

%

10.0

%

9.2

%

10.2

%

9.3

%

Return on average tangible common equity ¹ ²

17.0

%

13.9

%

16.9

%

17.1

%

15.7

%

17.7

%

16.2

%

Efficiency ratio ¹

45.8

%

47.2

%

45.6

%

46.1

%

48.1

%

45.8

%

48.6

%

Capital:
Tier 1 capital ratio

11.4

%

11.5

%

11.4

%

11.1

%

12.0

%

11.8

%

11.5

%

Total capital ratio

12.4

%

12.5

%

12.4

%

12.1

%

13.0

%

12.8

%

12.5

%

Tier 1 leverage ratio

10.2

%

10.4

%

10.2

%

10.1

%

10.7

%

10.6

%

10.4

%

Common equity tier 1 ratio

10.7

%

10.7

%

10.7

%

10.4

%

11.3

%

11.0

%

10.7

%

Tangible common equity / tangible assets ¹

9.2

%

9.3

%

9.2

%

9.0

%

9.6

%

9.5

%

9.3

%

Book value per share - GAAP $ 32.53 $ 30.37 $ 32.53 $ 31.82 $ 31.24 $ 30.84 $ 30.37
Tangible book value per share ¹ $ 19.43 $ 17.68 $ 19.43 $ 18.72 $ 18.57 $ 18.16 $ 17.68
Asset Quality:
Nonaccrual loans $ 121,616 $ 131,274 $ 121,616 $ 138,944 $ 143,206 $ 127,315 $ 131,274
Other repossessed property $ 32,450 $ 16,726 $ 32,450 $ 22,224 $ 23,074 $ 10,221 $ 16,726
Nonaccrual loans / total loans

1.24

%

1.41

%

1.24

%

1.42

%

1.52

%

1.36

%

1.41

%

Net charge-offs (recoveries) $ 9,425 $ 7,821 $ 5,863 $ 3,562 $ 5,163 $ 3,966 $ 3,784
Net charge-offs (recoveries) / average total loans ²

0.20

%

0.17

%

0.25

%

0.15

%

0.22

%

0.17

%

0.17

%

Allowance for loan and lease losses / total loans

0.70

%

0.70

%

0.70

%

0.68

%

0.69

%

0.69

%

0.70

%

Watch-rated loans $ 301,099 $ 294,873 $ 301,099 $ 321,593 $ 343,288 $ 276,001 $ 294,873
Substandard loans $ 258,946 $ 251,354 $ 258,946 $ 252,521 $ 252,660 $ 268,017 $ 251,354

 

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,
2019   2018 2019   2018   2018   2018   2018
(dollars in thousands)
Interest income
Loans $ 245,763 $ 217,674 $ 123,432 $ 122,331 $ 117,095 $ 116,522 $ 109,993
Investment securities 19,145 14,055 9,957 9,189 7,645 7,471 7,013
Federal funds sold and other 1,039     458   497     541     494     424     227  
Total interest income 265,947 232,187 133,886 132,061 125,234 124,417 117,233
Interest expense
Deposits 50,892 23,656 27,098 23,794 19,996 16,460 12,658
FHLB advances and other borrowings 3,926 4,978 1,923 2,003 1,907 1,963 2,815
Subordinated debentures and subordinated notes payable 2,760     2,377   1,390     1,370     1,341     1,322     1,207  
Total interest expense 57,578     31,011   30,411     27,167     23,244     19,745     16,680  
Net interest income 208,369 201,176 103,475 104,894 101,990 104,672 100,553
Provision for loan and lease losses 12,888     9,457   7,673     5,215     5,015     3,515     4,900  
Net interest income after provision for loan and lease losses 195,481     191,719   95,802     99,679     96,975     101,157     95,653  
Noninterest income
Service charges and other fees 21,897 25,224 10,209 11,689 13,198 12,655 12,047
Wealth management fees 4,358 4,519 2,117 2,241 2,458 2,242 2,335
Mortgage banking income, net 2,311 2,826 991 1,320 1,664 1,352 1,166
Net (loss) gain on sale of securities (513 ) (9 ) — (513 ) — 15 (8 )
Net increase (decrease) in fair value of loans at fair value 33,234 (23,502 ) 14,018 19,216 (14,534 ) (7,370 ) (14,838 )
Net realized and unrealized (loss) gain on derivatives (29,348 ) 21,509 (11,032 ) (18,317 ) 14,994 8,093 14,282
Other 3,004     4,849   1,920     1,084     1,475     1,952     3,758  
Total noninterest income 34,943 35,416 18,223 16,720 19,255 18,939 18,742
Noninterest expense
Salaries and employee benefits 69,307 66,539 34,537 34,770 33,691 35,122 33,672
Data processing and communication 11,242 16,074 5,964 5,278 6,554 7,177 9,190
Occupancy and equipment 10,665 10,138 5,539 5,126 5,219 4,974 5,290
Professional fees 7,258 8,267 3,970 3,288 5,326 4,297 4,027
Advertising 2,154 2,181 1,216 938 1,066 1,260 1,121
Net loss on repossessed property and other related expenses 3,467 1,214 404 3,063 2,850 305 1,000
Other 9,593     9,599   4,950     4,643     4,844     4,728     4,844  
Total noninterest expense 113,686     114,012   56,580     57,106     59,550     57,863     59,144  
Income before income taxes 116,738 113,123 57,445 59,293 56,680 62,233 55,251
Provision for income taxes 26,441     43,361   12,934     13,507     14,399     16,359     14,719  
Net income $ 90,297     $ 69,762   $ 44,511     $ 45,786     $ 42,281     $ 45,874     $ 40,532  
 
GREAT WESTERN BANCORP, INC.          
Summarized Consolidated Balance Sheet (Unaudited)
 
As of
March 31, December 31, September 30, June 30, March 31,
2019 2018 2018 2018 2018
(dollars in thousands)
Assets
Cash and cash equivalents $ 282,638 $ 276,760 $ 298,696 $ 294,614 $ 371,749
Investment securities 1,763,305 1,531,916 1,385,650 1,372,711 1,307,598
Total loans 9,770,911 9,767,476 9,415,924 9,379,819 9,338,306
Allowance for loan and lease losses   (68,003 )   (66,193 )   (64,540 )   (64,688 )   (65,139 )
Loans, net 9,702,908 9,701,283 9,351,384 9,315,131 9,273,167
Goodwill 739,023 739,023 739,023 739,023 739,023
Other assets   342,289     324,659     342,055     287,569     300,780  
Total assets $ 12,830,162   $ 12,573,641   $ 12,116,808   $ 12,009,048   $ 11,992,317  
Liabilities and stockholders' equity
Noninterest-bearing deposits $ 1,824,507 $ 1,879,883 $ 1,842,704 $ 1,793,293 $ 1,854,734
Interest-bearing deposits   8,643,876     8,233,364     7,890,795     7,792,025     7,532,233  
Total deposits 10,468,383 10,113,247 9,733,499 9,585,318 9,386,967
Securities sold under agreements to repurchase 62,537 56,649 90,907 105,478 103,291
FHLB advances and other borrowings 275,000 410,000 275,000 335,000 551,003
Other liabilities   171,848     181,737     176,851     166,511     162,358  
Total liabilities 10,977,768 10,761,633 10,276,257 10,192,307 10,203,619
Stockholders' equity   1,852,394     1,812,008     1,840,551     1,816,741     1,788,698  
Total liabilities and stockholders' equity $ 12,830,162   $ 12,573,641   $ 12,116,808   $ 12,009,048   $ 11,992,317  
 
GREAT WESTERN BANCORP, INC.          
Loan Portfolio Summary (Unaudited)
 
As of Fiscal year-to-date:
March 31, December 31, September 30, Change Change
2019 2018 2018 ($) (%)
(dollars in thousands)
Construction and development $ 607,757 $ 579,941 $ 637,693 $ (29,936 ) (4.7 )%
Owner-occupied CRE 1,366,844 1,359,979 1,334,480 32,364 2.4 %
Non-owner-occupied CRE 2,681,686 2,577,158 2,347,237 334,449 14.2 %
Multifamily residential real estate   393,505     393,223     309,920     83,585   27.0 %  
Commercial real estate 5,049,792 4,910,301 4,629,330 420,462 9.1 %
Agriculture 2,121,872 2,234,735 2,182,688 (60,816 ) (2.8 )%
Commercial non-real estate 1,721,095 1,713,760 1,699,987 21,108 1.2 %
Residential real estate 815,212 845,262 837,569 (22,357 ) (2.7 )%
Consumer 44,504 47,704 49,689 (5,185 ) (10.4 )%
Other ¹   46,163     44,130     46,487     (324 )   (0.7 )%  
Total unpaid principal balance 9,798,638 9,795,892 9,445,750 352,888 3.7 %
Less: Unamortized discount on acquired loans and unearned net deferred fees and costs and loans in process   (27,727 )   (28,416 )   (29,826 )   2,099   (7.0 )%  
Total loans $ 9,770,911   $ 9,767,476   $ 9,415,924   $ 354,987   3.8 %  

 

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)
           
Three Months Ended
March 31, 2019   December 31, 2018 March 31, 2018

Average
Balance

 

Interest
(FTE)

 

Yield /
Cost ¹

Average
Balance

 

Interest
(FTE)

 

Yield /
Cost ¹

Average
Balance

 

Interest
(FTE)

 

Yield /
Cost ¹

(dollars in thousands)
Assets    
Interest-bearing bank deposits $ 63,546 $ 497 3.17 % $ 91,780 $ 541 2.34 % $ 58,943 $ 227 1.56 %
Investment securities 1,603,038 9,957 2.52 % 1,491,285 9,189 2.44 % 1,365,152 7,013 2.08 %
Non-ASC 310-30 loans, net ² 9,615,096 122,970 5.19 % 9,435,901 121,851 5.12 % 9,064,899 108,427 4.85 %
ASC 310-30 loans, net 63,879     1,904   12.09 % 67,834     1,970   11.52 % 82,306     3,182   15.68 %
Loans, net 9,678,975     124,874   5.23 % 9,503,735     123,821   5.17 % 9,147,205     111,609   4.95 %
Total interest-earning assets 11,345,559 135,328 4.84 % 11,086,800 133,551 4.78 % 10,571,300 118,849 4.56 %
Noninterest-earning assets 1,186,286   1,186,821   1,155,481  
Total assets $ 12,531,845     $ 135,328   4.38 % $ 12,273,621     $ 133,551   4.32 % $ 11,726,781     $ 118,849   4.11 %
Liabilities and Stockholders' Equity
Noninterest-bearing deposits $ 1,800,307 $ 1,865,295 $ 1,786,059
Interest-bearing deposits 6,363,730 $ 17,865 1.14 % 6,148,755 $ 15,736 1.02 % 5,929,757 $ 9,490 0.65 %
Time deposits 2,039,208     9,233   1.84 % 1,937,295     8,058   1.65 % 1,315,209     3,168   0.98 %
Total deposits 10,203,245 27,098 1.08 % 9,951,345 23,794 0.95 % 9,031,025 12,658 0.57 %
Securities sold under agreements to repurchase 63,237 43 0.28 % 79,849 57 0.28 % 107,921 83 0.31 %
FHLB advances and other borrowings 264,347 1,880 2.88 % 242,495 1,946 3.18 % 652,787 2,732 1.70 %
Subordinated debentures and subordinated notes payable 108,522     1,390   5.19 % 108,483     1,370   5.01 % 108,358     1,207   4.52 %
Total borrowings 436,106     3,313   3.08 % 430,827     3,373   3.11 % 869,066     4,022   1.88 %
Total interest-bearing liabilities 10,639,351 $ 30,411 1.16 % 10,382,172 $ 27,167 1.04 % 9,900,091 $ 16,680 0.68 %
Noninterest-bearing liabilities 69,554 74,397 56,573
Stockholders' equity 1,822,940   1,817,052   1,770,117  
Total liabilities and stockholders' equity $ 12,531,845   $ 12,273,621   $ 11,726,781  
Net interest spread 3.22 % 3.28 % 3.43 %
Net interest income and net interest margin (FTE) $ 104,917   3.75 % $ 106,384   3.81 % $ 102,169   3.92 %
Less: Tax equivalent adjustment 1,442   1,490   1,616  
Net interest income and net interest margin - ties to Statements of Comprehensive Income $ 103,475   3.70 % $ 104,894   3.75 % $ 100,553   3.86 %

 

1 Annualized for all partial-year periods.

2 Interest income includes $0.4 million and $0.6 million for the second quarter of fiscal years 2019 and 2018, respectively, resulting from accretion of purchase accounting discount associated with acquired loans.

GREAT WESTERN BANCORP, INC.          
Net Interest Margin (FTE) (Unaudited)
 
Six Months Ended
March 31, 2019 March 31, 2018
Average Interest Yield / Average Interest Yield /
Balance   (FTE)   Cost ¹ Balance   (FTE)   Cost ¹
(dollars in thousands)
Assets
Interest-bearing bank deposits $ 77,663 $ 1,039 2.68 % $ 62,439 $ 458 1.47 %
Investment securities 1,547,161 19,145 2.48 % 1,390,665 14,055 2.03 %
Non-ASC 310-30 loans, net ² 9,525,498 244,821 5.15 % 8,952,914 214,927 4.81 %
ASC 310-30 loans, net 65,857     3,874   11.80 % 86,073     5,928   13.81 %
Loans, net 9,591,355     248,695   5.20 % 9,038,987     220,855   4.90 %
Total interest-earning assets 11,216,179 268,879 4.81 % 10,492,091 235,368 4.50 %
Noninterest-earning assets 1,186,554   1,166,069  
Total assets $ 12,402,733     $ 268,879   4.35 % $ 11,658,160     $ 235,368   4.05 %
Liabilities and Stockholders' Equity
Noninterest-bearing deposits $ 1,831,877 $ 1,815,274
Interest-bearing deposits 6,257,167 $ 33,601 1.08 % 5,908,476 $ 17,781 0.60 %
Time deposits 1,988,251     17,291   1.74 % 1,291,255     5,875   0.91 %
Total deposits 10,077,295 50,892 1.01 % 9,015,005 23,656 0.53 %
Securities sold under agreements to repurchase 71,543 99 0.28 % 116,490 178 0.31 %
FHLB advances and other borrowings 253,421 3,827 3.03 % 586,181 4,800 1.64 %
Subordinated debentures and subordinated notes payable 108,503     2,760   5.10 % 108,337     2,377   4.40 %
Total borrowings 433,467     6,686   3.09 % 811,008     7,355   1.82 %
Total interest-bearing liabilities 10,510,762 $ 57,578 1.10 % 9,826,013 $ 31,011 0.63 %
Noninterest-bearing liabilities 71,975 66,525
Stockholders' equity 1,819,996   1,765,622  
Total liabilities and stockholders' equity $ 12,402,733   $ 11,658,160  
Net interest spread 3.25 % 3.42 %
Net interest income and net interest margin (FTE) ¹ $ 211,301   3.78 % $ 204,357   3.91 %
Less: Tax equivalent adjustment 2,932   3,181  
Net interest income and net interest margin - ties to Statements of Comprehensive Income $ 208,369   3.73 % $ 201,176   3.85 %

 

1 Annualized for all partial-year periods.

2 Interest income includes $0.7 million and $1.2 million for the first six months of fiscal years 2019 and 2018, respectively, resulting from accretion of purchase accounting discount associated with acquired loans.

Non-GAAP Financial Measures and Reconciliation

We rely on certain non-GAAP financial measures in making financial and operational decisions about our business. We believe that each of the non-GAAP financial 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 common 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 financial 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,
2019   2018 2019   2018   2018   2018   2018
(dollars in thousands except share and per share amounts)
Adjusted net income and adjusted earnings per common share:
Net income - GAAP $ 90,297 $ 69,762 $ 44,511 $ 45,786 $ 42,281 $ 45,874 $ 40,532
Add: Deferred taxes revaluation due to Tax Reform Act —     13,586   —     —     —     —     —  
Adjusted net income $ 90,297     $ 83,348   $ 44,511     $ 45,786     $ 42,281     $ 45,874     $ 40,532  
 
Weighted average diluted common shares outstanding 57,556,984 59,116,923 57,074,674 58,039,292 59,122,699 59,170,058 59,146,117
Earnings per common share - diluted $ 1.57 $ 1.18 $ 0.78 $ 0.79 $ 0.72 $ 0.78 $ 0.69
Adjusted earnings per common share - diluted $ 1.57 $ 1.41 $ 0.78 $ 0.79 $ 0.72 $ 0.78 $ 0.69
 
Tangible net income and return on average tangible common equity:
Net income - GAAP $ 90,297 $ 69,762 $ 44,511 $ 45,786 $ 42,281 $ 45,874 $ 40,532
Add: Amortization of intangible assets, net of tax 687     751   343     344     343     366     376  
Tangible net income $ 90,984     $ 70,513   $ 44,854     $ 46,130     $ 42,624     $ 46,240     $ 40,908  
 
Average common equity $ 1,819,996 $ 1,765,622 $ 1,822,940 $ 1,817,052 $ 1,825,312 $ 1,796,066 $ 1,770,117
Less: Average goodwill and other intangible assets 746,305     747,930   746,107     746,503     746,900     747,294     747,716  
Average tangible common equity $ 1,073,691     $ 1,017,692   $ 1,076,833     $ 1,070,549     $ 1,078,412     $ 1,048,772     $ 1,022,401  
 
Return on average common equity * 10.0 % 7.9 % 9.9 % 10.0 % 9.2 % 10.2 % 9.3 %
Return on average tangible common equity ** 17.0 % 13.9 % 16.9 % 17.1 % 15.7 % 17.7 % 16.2 %
* 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 $ 208,369 $ 201,176 $ 103,475 $ 104,894 $ 101,990 $ 104,672 $ 100,553
Add: Tax equivalent adjustment 2,932     3,181   1,442     1,490     1,687     1,729     1,616  
Net interest income (FTE) 211,301 204,357 104,917 106,384 103,677 106,401 102,169
Add: Current realized derivative gain (loss) 426     (4,116 ) 405     21     (419 )   (830 )   (1,640 )
Adjusted net interest income (FTE) $ 211,727     $ 200,241   $ 105,322     $ 106,405     $ 103,258     $ 105,571     $ 100,529  
 
Average interest-earning assets $ 11,216,179 $ 10,492,091 $ 11,345,559 $ 11,086,800 $ 10,857,168 $ 10,748,078 $ 10,571,300
Net interest margin (FTE) * 3.78 % 3.91 % 3.75 % 3.81 % 3.79 % 3.97 % 3.92 %
Adjusted net interest margin (FTE) ** 3.79 % 3.83 % 3.76 % 3.81 % 3.77 % 3.94 % 3.86 %
* 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 $ 241,889 $ 211,746 $ 121,528 $ 120,361 $ 115,284 $ 112,760 $ 106,811
Add: Tax equivalent adjustment 2,932     3,181   1,442     1,490     1,687     1,729     1,616  
Interest income (FTE) 244,821 214,927 122,970 121,851 116,971 114,489 108,427
Add: Current realized derivative gain (loss) 426     (4,116 ) 405     21     (419 )   (830 )   (1,640 )
Adjusted interest income (FTE) $ 245,247     $ 210,811   $ 123,375     $ 121,872     $ 116,552     $ 113,659     $ 106,787  
 
Average non-ASC 310-30 loans $9,525,498 $8,952,914 $ 9,615,096 $ 9,435,901 $ 9,299,318 $ 9,220,931 $ 9,064,899
Yield (FTE) * 5.15 % 4.81 % 5.19 % 5.12 % 4.99 % 4.98 % 4.85 %
Adjusted yield (FTE) ** 5.16 % 4.72 % 5.20 % 5.12 % 4.97 % 4.94 % 4.78 %
* 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 $ 243,312 $ 236,592 $ 121,698 $ 121,614 $ 121,245 $ 123,611 $ 119,295
Add: Tax equivalent adjustment 2,932     3,181   1,442     1,490     1,687     1,729     1,616  
Total revenue (FTE) $ 246,244     $ 239,773   $ 123,140     $ 123,104     $ 122,932     $ 125,340     $ 120,911  
 
Noninterest expense $ 113,686 $ 114,012 $ 56,580 $ 57,106 $ 59,550 $ 57,863 $ 59,144
Less: Amortization of intangible assets 788     852   394     394     394     416     426  
Tangible noninterest expense $ 112,898     $ 113,160   $ 56,186     $ 56,712     $ 59,156     $ 57,447     $ 58,718  
 
Efficiency ratio * 45.8 % 47.2 % 45.6 % 46.1 % 48.1 % 45.8 % 48.6 %
* 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 $ 1,852,394 $ 1,788,698 $ 1,852,394 $ 1,812,008 $ 1,840,551 $ 1,816,741 $ 1,788,698
Less: Goodwill and other intangible assets 745,947     747,545   745,947     746,341     746,735     747,129     747,545  
Tangible common equity $ 1,106,447     $ 1,041,153   $ 1,106,447     $ 1,065,667     $ 1,093,816     $ 1,069,612     $ 1,041,153  
 
Total assets $ 12,830,162 $ 11,992,317 $ 12,830,162 $ 12,573,641 $ 12,116,808 $ 12,009,048 $ 11,992,317
Less: Goodwill and other intangible assets 745,947     747,545   745,947     746,341     746,735     747,129     747,545  
Tangible assets $ 12,084,215     $ 11,244,772   $ 12,084,215     $ 11,827,300     $ 11,370,073     $ 11,261,919     $ 11,244,772  
 
Tangible common equity to tangible assets 9.2 % 9.3 % 9.2 % 9.0 % 9.6 % 9.5 % 9.3 %
 
Tangible book value per share:
Total stockholders' equity $ 1,852,394 $ 1,788,698 $ 1,852,394 $ 1,812,008 $ 1,840,551 $ 1,816,741 $ 1,788,698
Less: Goodwill and other intangible assets 745,947     747,545   745,947     746,341     746,735     747,129     747,545  
Tangible common equity $ 1,106,447     $ 1,041,153   $ 1,106,447     $ 1,065,667     $ 1,093,816     $ 1,069,612     $ 1,041,153  
 
Common shares outstanding 56,938,435 58,896,189 56,938,435 56,938,435 58,917,147 58,911,563 58,896,189
Book value per share - GAAP $ 32.53 $ 30.37 $ 32.53 $ 31.82 $ 31.24 $ 30.84 $ 30.37
Tangible book value per share $ 19.43 $ 17.68 $ 19.43 $ 18.72 $ 18.57 $ 18.16 $ 17.68