Great Western Bancorp, Inc. Announces Earnings for First Quarter Fiscal Year 2021

Rhea-AI Summary

Great Western Bancorp, Inc. reported a net income of $41.3 million, or $0.75 per diluted share, for Q1 FY2021, a significant increase from $11.1 million in the previous quarter. Key metrics included a 10.0% decrease in nonaccrual loans and a 20.2% reduction in the hotel loan portfolio. The company achieved a strong pre-tax pre-provision income of $66.3 million and improved its total capital position to 14.3%. Net interest income rose to $109.5 million, reflecting strong management measures amid the ongoing COVID-19 pandemic.

Positive

• Net income rose to $41.3 million, up from $11.1 million in the prior quarter.
• 10.0% decrease in nonaccrual loans.
• 20.2% reduction in hotel loan portfolio.
• Pre-tax pre-provision income improved to $66.3 million.
• Total capital ratio strengthened to 14.3%.

Negative

• Total loans decreased by $0.56 billion from the prior quarter.
• Net charge-offs increased to $30.4 million, up from $15.2 million in the previous quarter.

Great Western Bancorp, Inc. (NYSE: GWB) today reported net income of $41.3 million, or $0.75 per diluted share, for the first quarter of fiscal year 2021, compared to net income of $11.1 million, or $0.20 per diluted share, for the fourth quarter of fiscal year 2020.

"Our quarterly results reflect the meaningful progress in key areas over the past several months," said Mark Borrecco, President and Chief Executive Officer. "Our focus on credit risk management resulted in a 10.0% decrease in nonaccrual loans. We reduced our hotel (excluding casino hotels) portfolio by 20.2% through multiple sales at a 12.0% discount to loan value, and our deferrals tracked lower to 1.29% of loans excluding Paycheck Protection Program ("PPP") loans. Our adoption of CECL allowed us to build an ACL to total loans ratio of 3.50% (excluding PPP loans), and we managed funding and noninterest cost savings leading to $66.3 million of pre-tax pre-provision income². Our conservative and measured actions helped further strengthen our total capital position to 14.3%."

"We have taken multiple steps to reshape our small business and treasury management functions, and I am excited that we saw progress this past quarter. While in the near term we will continue to focus on improving asset quality and de-risking the balance sheet, we are implementing initiatives to simplify processes and improve client experience."

Impact and Response to COVID-19 Pandemic

We remain focused on keeping our employees safe and our bank running effectively to serve our customers. We are managing branch access and occupancy levels in relation to cases and close contact scenarios, encouraging remote work and supporting our employees with paid time off and following CDC guidelines for those working in the office. For our customers, we are supporting PPP, having provided $727.3 million in loans to over 4,800 customers and now having processed $27.8 million of loans through the forgiveness pathway. We are prepared to provide additional PPP lending as part of the recently enacted Economic Aid to Hard Hit Small Businesses, Non-Profits, and Ventures Act.

Net Interest Income and Net Interest Margin¹

Net interest income was $109.5 million for the quarter, an increase of $2.0 million, while net interest margin was 3.63%, a 12 basis point increase from 3.51%. Adjusted net interest income² was $106.1 million, an increase of $2.1 million, and adjusted net interest margin² was 3.52% for the quarter, an increase of 12 basis points from the prior quarter. Interest income was lower by $1.2 million as loan interest decreased slightly and securities interest decreased by $1.2 million. Loan interest reflects a decrease of $3.7 million from lower volumes and lower yields largely offset by a $3.6 million increase in net recovery of interest on nonaccrual loans. Securities interest decreased due to lower yields driven by the low interest rate environment. The decrease in interest income was offset by a $3.2 million decrease in interest expense driven by a $1.8 million decrease in deposit interest from increased noninterest bearing deposits and lower yields on interest-bearing deposits, along with a $1.4 million decrease in borrowings interest following the prepayment of FHLB borrowings in the prior quarter.

Noninterest Income

Noninterest income was $14.1 million for the quarter, an increase of $18.1 million from the prior quarter, driven by a $2.0 million increase in core revenue items and a $23.7 million improvement in fair value adjustments and derivative interest items, offset by a $7.6 million decrease in securities gains. The increase in core revenue was driven by slight increases in mortgage banking revenue on strong origination demand and in service charges from a continued rebound in customer transaction activity. The improvement in fair value adjustments was driven primarily by a total of $21.5 million in charges incurred in the prior quarter and realized losses on certain loans, including a swap break fee.

Noninterest Expense

Total noninterest expense was $57.4 million for the quarter, a decrease of $17.5 million from the prior quarter. A large portion of the decrease was driven by several items incurred in the prior period, including a $7.6 million FHLB prepayment expense, a $2.0 million expense related to the completion of the FDIC loss-sharing agreement, approximately $1.8 million in severance, closure and consulting costs, and a $0.9 million decrease in the unfunded commitment reserve, which is now accounted for within loan provisioning under CECL.

Other real estate owned expenses were $0.3 million, a decrease of $4.0 million from the prior quarter due to lower provisioning, and professional fees were $3.9 million, a decrease of $1.6 million from the prior quarter due to reductions in consulting costs and FDIC insurance premium.

The efficiency ratio¹ was 46.2% for the quarter, compared to 72.1% for the prior quarter.

Asset Quality

The ACL was $308.8 million as of December 31, 2020, an increase of $158.9 million from the allowance for loan and lease losses of $149.9 million as of September 30, 2020. The increase was driven by the adoption of CECL on October 1, 2020, where we recognized a Day 1 increase in the ACL of $177.3 million, which was partially offset by the net impact from provisioning and charge-offs during the quarter.

Provision for credit losses on loans was $11.9 million for the quarter, compared to $16.9 million in the prior quarter under the incurred loss model.

Net charge-offs were $30.4 million, or 1.22% of average total loans (annualized) for the quarter, up $15.2 million and 63 basis points from the prior quarter, respectively. The increase was driven by $25.6 million of discount on the sales of certain hotel loans. Excluding those, net charge-offs for the quarter were $4.8 million, or 0.19% of average total loans (annualized).

The ratio of ACL to total loans was 3.24% as of December 31, 2020, an increase from 1.49% as of September 30, 2020. Excluding PPP loans the ratio was 3.50%.

Included within total loans are approximately $611.6 million of loans with long-term maturities that use derivatives to manage a fixed rate structure for the customer and for which management has elected the fair value accounting option. These loans are excluded from the ACL, but management has estimated that approximately $27.5 million of the fair value adjustment for these loans relates to credit risk, or 0.29% of total loans.

Nonaccrual loans were $292.4 million as of December 31, 2020, a decrease of $32.6 million from $324.9 million as of September 30, 2020, driven by a number of payoffs causing agriculture loans to decline by $24.7 million and non-agriculture loans to decrease by $7.9 million. Classified loans, which include nonaccrual loans, were $716.9 million as of December 31, 2020, a decrease of $52.6 million from $769.5 million as of September 30, 2020, driven by a number of upgraded agriculture relationships, and a number of payoffs and sales in both agriculture and non-agriculture loans, partially offset by approximately $54.0 million in new hotel downgrades. Total other repossessed property balances were $18.1 million for the quarter, a decrease of $1.9 million from the prior quarter.

A summary of total credit-related charges incurred during current, previous and comparable quarters is presented below:

GREAT WESTERN BANCORP, INC.
Summary of Credit-Related Charges (Unaudited)
				For the three months ended:
Item		Included within F/S Line Item(s):		December 31, 2020				September 30, 2020				December 31, 2019
				(dollars in thousands)
Provision for credit losses ¹		Provision for credit losses		$	11,899			$	16,853			$	8,103
Increase (decrease) unfunded commitment reserve ¹		Other noninterest expense ¹			—				(920	)			200
Net other repossessed property charges		Net loss on repossessed property and other related expenses			345				4,350				342
Net (recovery) reversal of interest income on nonaccrual loans		Interest income on loans			(2,913	)			730				2,006
Net realized credit loss on derivatives		Change in fair value of FVO loans and related derivatives			210				1,243				—
Loan fair value adjustment related to credit		Change in fair value of FVO loans and related derivatives			1,464				23,407				2,134
Total credit-related charges				$	11,005			$	45,663			$	12,785
1 Beginning in the first quarter of fiscal year 2021, increase in unfunded commitment reserve is included in provision for credit losses.

We continue to evaluate the impact of COVID-19 on our loan portfolio. Industries such as hotels & resorts (excluding casino hotels), casino hotels, restaurants, oil & energy, retail malls, airlines and healthcare have experienced significant revenue loss due to COVID-19. Within our portfolio we are closely monitoring the following segments with elevated risk (excluding PPP loans): hotels & resorts (excluding casino hotels) with $822.6 million, or 8.6% of total loans, restaurants with $123.1 million, or 1.3% of total loans, arts and entertainment with $115.5 million, or 1.2% of total loans, senior care with $312.1 million, or 3.3% of total loans, and skilled nursing with $215.2 million, or 2.3% of total loans, for a total exposure of $1.59 billion, or 18.0% of total loans excluding PPP loans. Loan exposure in such other identified industries is either immaterial or has not shown general distress thus far. Loan deferrals related to COVID-19 relief have declined further to 1.29% of loans excluding PPP as of January 13, 2021 from 1.98% in the prior quarter.

Loans and Deposits

Total loans outstanding were $9.52 billion as of December 31, 2020, a decrease of $0.56 billion from the prior quarter. Average total loans outstanding were $9.57 billion as of December 31, 2020, a decrease of $0.45 billion from the prior quarter. The decrease in loans during the quarter was driven by sales of $208.8 million in hotel loans, a number of payoffs in nonaccrual and classified loans, an increase in paydowns across the commercial, agriculture and consumer portfolios, and processing of $27.8 million of PPP loan forgiveness.

Total deposits were $11.37 billion as of December 31, 2020, an increase of $364.5 million from the prior quarter, driven by a $438.5 million increase in checking and savings balances offset by a $67.9 million decrease in time deposits.

Capital

Tier 1 and total capital ratios were 12.7% and 14.3%, respectively, as of December 31, 2020, compared to 11.8% and 13.3% as of September 30, 2020. The common equity tier 1 capital ratio and tier 1 leverage ratio were 12.0% and 9.7%, respectively, as of December 31, 2020, compared to 11.0% and 9.4% as of September 30, 2020. All regulatory capital ratios remain above regulatory minimums to be considered "well capitalized." The Company has elected the 5 year CECL transition for regulatory capital ratios, resulting in an add-back of $129.5 million to common equity tier 1 capital as of December 31, 2020.

On January 27, 2021, the Company's Board of Directors declared a dividend of $0.01 per common share payable on February 26, 2021 to stockholders of record as of close of business on February 12, 2021.

Provision for Income Taxes

Income tax expense was $11.4 million for the quarter, an increase of $12.2 million from the prior quarter, yielding an effective rate of 21.6%. The increase was due to the prior quarter reflecting the impact of lower taxable income for the fiscal year 2020.

Conference Call

Great Western Bancorp, Inc. will host a conference call to discuss its financial results for the first quarter of fiscal year 2021 on Wednesday, January 27, 2021 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 by visiting ir.greatwesternbank.com. A replay will be available beginning one hour following the conference call and ending on February 10, 2021. To access the replay, dial (877) 344-7529 (U.S.) and use conference ID 10150836. 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 to be held virtually at www.meetingcenter.io/225325833 on Tuesday, February 9, 2021. The meeting will commence at 9:00 a.m. Central Time. The record date for determination of stockholders entitled to notice of, and to vote at, the Annual Stockholder Meeting was December 11, 2020.

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, strategies for managing troubled loans, the impact on the business arising from the COVID-19 pandemic 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 and for the three months ended:
		December 31, 2020				September 30, 2020				June 30, 2020				March 31, 2020				December 31, 2019
		(dollars in thousands, except share and per share amounts)
Operating Data:
Interest income (FTE)		$	117,195			$	118,429			$	121,472			$	126,757			$	133,060
Interest expense		$	7,689			$	10,903			$	13,620			$	23,260			$	26,364
Noninterest income		$	14,148			$	(3,950	)		$	(11,683	)		$	(83	)		$	15,733
Noninterest expense		$	57,449			$	74,936			$	67,049			$	808,453			$	56,930
Provision for credit losses ³		$	11,899			$	16,853			$	21,641			$	71,795			$	8,103
Net income		$	41,319			$	11,136			$	5,400			$	(740,618	)		$	43,274
Adjusted net income ¹		$	41,319			$	11,136			$	5,400			$	29,080			$	43,274
Common shares outstanding			55,105,105				55,014,189				55,014,047				55,013,928				56,382,915
Weighted average diluted common shares outstanding			55,247,343				55,164,548				55,145,619				55,906,002				56,457,967
Earnings per common share - diluted		$	0.75			$	0.20			$	0.10			$	(13.25	)		$	0.77
Adjusted earnings per common share - diluted ¹		$	0.75			$	0.20			$	0.10			$	0.52			$	0.77
Performance Ratios:
Net interest margin (FTE) ¹ ²			3.63	%			3.51	%			3.57	%			3.59	%			3.68	%
Adjusted net interest margin (FTE) ¹ ²			3.52	%			3.40	%			3.47	%			3.55	%			3.65	%
Return on average total assets ²			1.30	%			0.35	%			0.17	%			(23.16	)%			1.34	%
Return on average common equity ²			15.2	%			3.8	%			1.9	%			(155.3	)%			9.0	%
Return on average tangible common equity ¹ ²			15.3	%			3.9	%			2.0	%			(9.3	)%			15.0	%
Efficiency ratio ¹			46.2	%			72.1	%			69.4	%			63.5	%			46.2	%
Capital:
Tier 1 capital ratio			12.7	%			11.8	%			11.3	%			11.3	%			12.0	%
Total capital ratio			14.3	%			13.3	%			12.9	%			12.9	%			13.0	%
Tier 1 leverage ratio			9.7	%			9.4	%			9.3	%			9.2	%			10.4	%
Common equity tier 1 ratio			12.0	%			11.0	%			10.6	%			10.6	%			11.3	%
Tangible common equity / tangible assets ¹			8.3	%			9.2	%			8.9	%			9.3	%			9.7	%
Book value per share - GAAP		$	19.39			$	21.14			$	21.10			$	20.97			$	34.06
Tangible book value per share ¹		$	19.28			$	21.03			$	20.98			$	20.84			$	20.77
Asset Quality:
Nonaccrual loans		$	292,357			$	324,946			$	274,475			$	213,075			$	156,113
Other repossessed property		$	18,086			$	20,034			$	19,231			$	27,289			$	39,490
Nonaccrual loans / total loans			3.07	%			3.22	%			2.66	%			2.20	%			1.62	%
Net charge-offs (recoveries)		$	30,357			$	15,124			$	9,433			$	8,626			$	6,096
Net charge-offs (recoveries) / average total loans ²			1.22	%			0.59	%			0.37	%			0.36	%			0.25	%
Allowance for credit losses / total loans			3.24	%			1.49	%			1.44	%			1.40	%			0.76	%
Watch-rated loans (under former risk rating system) ⁴			n/a			$	982,841			$	477,128			$	420,252			$	416,259
Special mention loans ⁴		$	453,484				n/a				n/a				n/a				n/a
Criticized loans (special mention or worse) ⁴		$	1,170,432				n/a				n/a				n/a				n/a
Classified loans (substandard or worse)		$	716,948			$	769,515			$	702,795			$	629,327			$	640,501
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.
3 Prior to the adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs, on October 1, 2020, this line represented the provision for loan and lease losses under the incurred model.
4 Upon implementation of the new risk rating system on October 1, 2020, the reported Watch rating was retired and new Special Mention loans and Criticized loans ratings were introduced for monitoring and reporting purposes.

GREAT WESTERN BANCORP, INC.
Consolidated Income Statement (Unaudited)
		At and for the three months ended:
		December 31, 2020				September 30, 2020				June 30, 2020				March 31, 2020				December 31, 2019
		(dollars in thousands)
Interest income
Loans		$	107,323			$	107,522			$	109,227			$	113,356			$	119,431
Investment securities			8,119				9,294				10,532				11,329				11,498
Federal funds sold and other			155				105				112				558				608
Total interest income			115,597				116,921				119,871				125,243				131,537
Interest expense
Deposits			5,992				7,785				10,011				18,867				21,940
FHLB advances and other borrowings			880				2,221				2,539				3,155				3,113
Subordinated debentures and subordinated notes payable			817				897				1,070				1,238				1,311
Total interest expense			7,689				10,903				13,620				23,260				26,364
Net interest income			107,908				106,018				106,251				101,983				105,173
Provision for credit losses ¹			11,899				16,853				21,641				71,795				8,103
Net interest income after provision for loan and lease losses			96,009				89,165				84,610				30,188				97,070
Noninterest income
Service charges and other fees			9,624				9,413				7,731				9,188				11,409
Wealth management fees			3,029				2,913				2,773				3,122				2,964
Mortgage banking income, net			4,090				3,780				2,422				1,145				1,612
Net gain (loss) on sale of securities and other assets			248				7,890				—				—				—
Derivative interest expense			(3,393	)			(3,541	)			(3,040	)			(1,251	)			(890	)
Change in fair value of FVO loans and related derivatives			(1,672	)			(24,648	)			(25,001	)			(10,533	)			(2,124	)
Other derivative income (loss)			898				(890	)			2,242				(2,889	)			1,597
Other			1,324				1,133				1,190				1,135				1,165
Total noninterest income (loss)			14,148				(3,950	)			(11,683	)			(83	)			15,733
Noninterest expense
Salaries and employee benefits			37,554				37,182				39,042				37,312				35,905
Data processing and communication			6,226				6,742				5,817				6,123				5,773
Occupancy and equipment			5,213				5,332				5,251				5,597				5,093
Professional fees			3,915				5,552				7,382				5,263				3,764
Advertising			556				823				750				958				865
Net loss on repossessed property and other related expenses			345				4,350				2,475				5,691				342
Goodwill and intangible assets impairment			—				—				—				742,352				—
Other			3,640				14,955				6,332

FAQ

What were the earnings results for Great Western Bancorp, Inc. (GWB) in Q1 FY2021?

Great Western Bancorp, Inc. reported a net income of $41.3 million, or $0.75 per diluted share, for Q1 FY2021.

How did nonaccrual loans change for GWB in the latest quarter?

Nonaccrual loans decreased by 10.0% during the latest quarter.

What is the total capital position of Great Western Bancorp, Inc. (GWB)?

The total capital position strengthened to 14.3% as of December 31, 2020.

What is the current net interest income for GWB?

Net interest income for the quarter was $109.5 million.

What is the status of GWB's loan portfolio amid COVID-19?

The loan portfolio saw a decrease, with total loans outstanding at $9.52 billion as of December 31, 2020.