GWB - Earnings call transcript Q2 2018 | Great Western Bancorp, Inc.

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Operator

Good day and welcome to the Great Western Bancorp Second Quarter Fiscal Year 2018 Earnings Announcement and Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ann Nachtigal, Director of Corporate Communications. ahead. go Please

Ann Nachtigal

[ph], [Kelly] morning everyone. Thank and you, good

Chief Western us are, fiscal quarter Michael morning Gough, Peter Ken Risk Officer; Ulenberg, Great Regional this on Bancorp's President. Chapman, Officer; year Executive Doug Chairman, Chief and second Officer; Officer; President Steve Chief Joining Karels, Chief Financial and XXXX Bass, Credit conference call

Company's to Before actual could forward-looking presentation statement discussion those full have statements discussed. the contain today's Web-site periodic to presentation we on get Please our as may materially a for that of available refer to started, the disclosures SEC results uncertainties forward-looking I'd are contained well filings as future Company's like in certain the subject risk made differ to cause our and the remind you that risks that from we factors.

Additionally, measure such be today are included a should only understanding this trends and Great for financial and Bancorp's to conference measures referenced measures to With performance over References non-GAAP and non-GAAP the Great President assist Executive Officer, on it certain are upon to as you be in relied non-GAAP results provided we call. Ken? actual discussing Chief Karels. Western's not will of Chairman, presentation. turn appropriately said, within results. that Western measures now Ken let financial me Reconciliations and

Kenneth James Karels

results. discuss financial Thank taking time the our us for morning morning you you, Ann, and to everyone. good Thank to join this

growth on share. $XXX with underlying an strong, this increasing basis. $XX.X are; million of was We This A are net very annualized pleased the per year. loans or from and last increase or our the with highlights is $X.XX X.X% Loan XX% million quarter. in an remained earnings few of growth business income

finally, of reflects returns. an up accounting due efficiency Bank's Our a Great This And increase ability dividend to per exclude moment. Pete our XX.X%, will capital expand if XX% generate remained XX.X% that upon strong increased to gross $X.XX we our share. excess Chapman strong at you or quarterly in ratio Western to

on turn the call quarter more Pete? results, Peter for Chief first Chapman. I'd insight financial Now our over our Officer, Financial to like to

Peter Chapman

and Thank morning Ken, good everybody. you,

As Ken million efficiency gross termination the but from expense is This quarter. is largely contract mentioned, a offsets. there ratio of [indiscernible] the a gross noninterest real up for net and due income by by income to quarter change. noninterest for income offsetting our upon impact up that cost within statement $X.X X% vendor our has no This and does approximately a

interest is related Now income the moving in interest the was revenue, quarter, quarter. income quarter, higher to borrowings by for count net a and from deposits interest lower primarily expense million offset day $XXX.X and growth which XXXX loan prior the loan to driven resulting March partially comparable by to

for offset million Noninterest quarter, XXXX the was partially of was rising was by borrowings. floating interest-bearing by which which is portfolio margin Our result fact quarter driven NIM was basis adjusted X.XX%. the X a was higher mainly net X.XX% as our for the a driven deposits to signing December points that the The a adjustable, million, adjusted and by loan and income increased of over quarter interest our compared quarter yields, increase XX% or margin the $X.X bonus. net cost asset XX% $XX.X quarter of interest by contract

fee wealth revenue income. as $XXX,XXX, result mortgage a and Excluding and service amount, higher the swap offset March noninterest charges softer being seasonally income which declined management quarter by was of this by income in

and costs associated is within an included with within Finally, the bonus an cost $XXX,XXX, communication premises. The the $XX.X contract of due maintenance million and increased new noninterest increased was by branch quarter. in was $XXX,XXX increase the costs. or $X million costs OREO taxes our quarter, for last the of gross-up the occupancy expenses and and in salaries data This driven seasonal expenses announcements which $XX.X increase million for $XXX,XXX of were one-time excluding $X.X quarter, million processing $XXX,XXX and a breakage of living as a of wage result to benefits, property increase

now lower over regulatory remain assets President, the expense I'd at broadly and include and to expect above rate and QX Bass, and following balance with that our activity. equity will to We not to limits, XX.X% salary bonuses. expenses well-capitalized run XX.X% line with increasing quarter tangible should Doug sheet quarter total turn discuss the to view ratios comfortably in be OREO capital one-time with also capital to common this in to ratios Regional expense like X.X%. the respectively All tangible the be Doug? $XXX,XXX in our

Douglas R. Bass

morning Pete, Thanks, and good everyone.

was and to development, are loan compared nearly of million estate most segments growth construction, in increased $XXX XX, We of to annualized happy Loan report balances consecutive Growth construction third the rate of quarter land a robust strong growth. an portfolio. non-real X%. December

we and As months expected in higher lines XXXX March quarter. this during prior, development XXX XX unfunded was call, million were growth earnings so construction December our flagged than quarterly in construction

geographic inflow X.X%. of year-to-date brings during was portfolio million which We estate owner-occupied quarter, the expect The and for focus growth coming in Commercial in desire net between split on the or Geographically, continued XX% good our The to basis. in and growth our to our approximately some pursue portfolio. Missouri, by and and of our a growth. loan consumer with across inflow growth broad deposit quarter's reflects non-real in finished X% an projects real the footprint growth market. Iowa, was $XXX Dakota, into this the and million This commercial balanced growth represented growth $XX quarter growth distributed across Deposit refinancing industrial this the South grew diverse reflecting Arizona, and footprint. despite quarters business. was segment benefit Kansas, secondary estate our

deposit of our range. to XX% within targeted well remains loan ratio Our

Officer, our developments. Let's turn quality take now us Chief Credit who will Gough, asset through the call over Michael? Michael to

Michael Gough

Thank you, Doug.

quarter, our on slight a the quality, asset now the Turning compared quarter. for or quarter attention million to losses charge-offs quarterly basis, million on increase charge-off and for points the to loan Net the was is than slide for provision of previous lowest XXXX. which prior $X.X an also lower the XX average since quarter fiscal annualized were rate the $X.X net basis loans year

at and basis was Our lease loan allowance XX for loans as of total percentage losses a points. stable

fair increases our non-accrual of sound $X purchase we XXXX, to at million million credits Our and loans. value $X than Substandard total includes coverage, credit December decrease $XX comprehensive were points marks, loans. Watch basis XX, and respectively, and by loan which related Compared remained on accounting in of million long-term credit portfolio adjustments which in offset saw more modest XXX a

and pleased XX.X% renewal the are of Watch we of that completed all this cycle, to which same rated would We during credits XX.X% ag all you completed during and have period. typically review inform worse reviews, be

annual in addition, expectations In with all worse and the earnings be we XXXX our have farmers' completed general, XX.X% outpacing renewal in during would line during performance calls, rated credits reviews, In of of review which and previous this with upgrades modestly same downgrades. cycle, producer XX.X% completed our all was period. grain typically Watch or

with concerns but tariffs, around trend soybean If on our do specific monitor remarks. some part downward this as prices are milk on at the the With months not focus stage have ago have potential for forward look year's slight and a portfolio. to closing the we milk production. that around of have quarter. The last we has to may soybeans contracted on turn in and with the back yesterday, reversed higher than many prices of future this that, how loan trade customers discussion XX discussed let's improvement the of we call continue quarters impact actively our customers, prices Ken We impact during these at still few

Kenneth James Karels

the growth this you, We flat. was achieved quarter. considering for Thank solid is strong, historically Loan results growth quarter's Michael.

tangible Our exceptional XX% a returns a ROA X.X% were on equity. return with and

in with stable and our very line remained quality much expectations. Asset

positive reform and on to that of tax our impact optimistic are business. customers regulatory our own impact We and continue have the will a the

Additionally, happy up we see GWB interest high you your confident we open going in questions. forward. the we Thank call for now and growth will to mid single-digit remain are to for loan continued

Operator

[Operator Ebrahim Please from Lynch. Poonawala ahead. Merrill of from comes first go Instructions] America Bank question The

Ebrahim Poonawala

I So, we levied if if this could where thinking following through, up, when you appreciate thanks just concern growth, quite about helpful thing amount impact but there your like this Bank, outlook? versus on worst earnings and how the tied to about would to around because of credit are much and is the that are for the your to there be a fair tariffs, goes the like – from update tariffs in comes on the how would that scenario that actually impact in case of noise that is customers point impact think get

Kenneth James Karels

to think regarding make or I Michael want but points it said earlier, going a just you tariff it's to on think have it. either few we growth little on the I it. not as Michael, affect earnings itself, very concern maybe

Michael Gough

so, do to Happy Ken.

So exactly, that postering production Other of talk, discussion XX% China the imports it's far. soybean lot said so is far that's a a you what's we about look so is thing been really pretty year. reported of it's Argentina XX The The is significant at of the a producers world's tons U.S., for are soybean a and drought. and concern far of indicates three lot not there. Argentina, a market or biggest million now Brazil right in lot

X% on was there yesterday, think our mark believe China back chose possible China market you do did plant corn do there they dropping have have the about just where demand that a year production indeed it distribution is that if on we if and realignment, What to as it presentation, footprint in other production would, than a further up seen and X% don't of beans, happen to up Indonesia, is out in corn a the to. they in could top Europe, our take to producers already again off year ago. see if to for and think cost soybeans, a the both we that up I call could was mentioned

all. we said, effects are as aware expect significant books don't watching at something but very it's So, all Ken much and our on loan of, at

Kenneth James Karels

maybe year's And the but I forward lot Doug, it, don't talk we thing, of this production. producers contracting our are other a think about

Doug? So,

Douglas R. Bass

the that's you Ebrahim, and when in look realize, at think Yes, mostly grain the I Midwest. book

opportunities forward locking Exchange. the You in that positions are most contracting or Mercantile through have got

of think Midwest about little growth, little Additionally you would growth to the be very asked and important production. around ag it's I very our pipeline focusing and notice, our of

from So we concerns. see to growth insignificant Midwest any no impacts agricultural of headwind commodity

Ebrahim Poonawala

Ken, just X% between year somewhere a And reading helpful. quite am I so mid you That's full X% single-digits, back to on high mentioned Understood. to to growth basis.

and growth, XQ was like relative to like than like XQ of much how we quite second the to stronger XQ tends be acceleration through Given seen to X% the like in X% previously, sequential should outs seasonally loan much should an quarter, you what see we just if can talk and that you've strong expect we anticipate? a ins could

Kenneth James Karels

to single that kind probably year. stick What saw of for growth was we'd want to think last with the typically to loan mid quarter quarter. I this high full flat down we

happy we the and the are to for think the had for this quite I we So growth propel quarter rest will that growth of us help see year.

but year. than as loan strong will as in next past quarter fiscal think growth there our on this pretty typically we the higher confident it had quarter substantially isn't last be So, I

Ebrahim Poonawala

capital, up looking you announced, other you And last what I at do capital see or just been the building if continues at capital discussions dividend like all of there, opportunities increase the alternative tangible just terms thoughts Understood. know have to moving M&A, I you to any build? one equity in potential one think deployment nicely, around like is

Kenneth James Karels

it obviously continue building mean capital. our isn't I to intent

and the a substantially. noise specifics M&A up activity at. and are activity we that there, looking deals chatter picking but There to to It's can picking obviously is talk just is is So, up. early lot say any too I more

Ebrahim Poonawala

Got my questions. it. taking Thanks for

Operator

The from D.A. next ahead. Please from comes Jeff Rulis Davidson. question Mr. go

Jeffrey Rulis

the on assumed also noise expenses kind discussion there expense, some the also side, lower of just correct? away, with the that that goes expecting Pete the contract expense on follow-up A guide break on the

Peter Chapman

Yes, it an estimate, Jeff. should. That's

we drop at you expense, we on tiny I a be [indiscernible] material. expect the just are know hope you at there $X higher in out might there OREO also close sort generally on we of quarter, than guidance XXX,XXX but wouldn't then said, X.X about was quarter settles million. And the XX.X, expenses, and that about last next back million as that to So

to about one-time of and there. thinking and just you sort of that This salary $XX million the do sort we take rate. a out you is bonuses, So, you get and are what run

Jeffrey Rulis

to wanted – words margin, of the And that how the don't going do then on if you if in know one-time client and to forward? deposit kind maybe nature, like interest but discussion about sort I into outstrip rate in earning asset an it costs yields, the costs, lean hoping the margin other encouraging, you swap just see of just outstripping sounded the adjusted more

Peter Chapman

Yes, to up. we tick would hope that continue does

last call think said increase, few X increase earnings I I a point obviously was basis very point the our basis good. and

thought. Just and costs little deposit more I funding a costs risen slowly have than

seen Jeff, with couple I a points as asset of basis still up by but costs. expect the would well, the have competition the margin deposits, more to quarter for We book next deposit for outpacing still tick

Jeffrey Rulis

additional you bucket and to anything for headed three of the one, detail last OREO, any OREO, resolution? of one there, maybe then And a whole kind properties the Great. added quick

Kenneth James Karels

want Mike, to go ahead? do you

Michael Gough

happy be to. I'll

With if those certainly only of workout and/or the thing the continuations got others where property. we where of ownership the join like, that strategy the got add, control you'd to point the the to I'd OREO, additions are in we

was surprise. there So, a nothing

got you wins, going I will, through them we say that in but properties book OREO under of have in of quick if the XXX% are you for number contract, that space come ever a As that in not always to fruition. to would have

of fall You those will have some out.

parcels. month, tell can are not on having on frequently, closely it's I those least and at the all more larger is every So, discussions we extremely monitored you if

Jeffrey Rulis

kind additional balance year? if to that the back you I OREO of that would for were could to the bucket, of workout then, we nonperforming strategy loans circle it, transition see to kind the the expect of So as

Michael Gough

think a now that or are Right see in we the going now. I that going to always a you what rate go It's best book is to are to we information have as lower where than run possibility. we at have

Kenneth James Karels

very low size million of Bank XX our the very, or is of Yes, $X billion still considering the loan.

we interested I is, going in as be to people in seeing on part So, contracts there work is is, mean the where economy looking through there with But goes whatever it there. too. deals we very and always in are good something it property

moving So it is fairly quickly.

Jeffrey Rulis

you. thank Great,

Operator

The ahead. Race next with Piper question Jaffray. comes go from Please Nathan

Nathan Race

year? saw you seasonal thereof, could see may Just during curious this a of through on or surprising ag calendar And saw kind the question perhaps that that maybe just lack then that because within growth fairly charge-offs kind quarter, just the quarter, how quarter, guys growth of process. context, so were went typically was in last ag much ag you in as we they quarter the think uptick low just net curious it see typical of tick the of somewhat those I the we first that seasonal this the year, you

Douglas R. Bass

Nathan, Doug. this is

of half the the of reconciliation. it on take and first will me Michael some Let help charge-off us then

with seasonal the end prepayments. of up with year we side, increases some growth end the the On toward

the right seeing around expenses Midwest January. in of of that into the in the a And spring we some then have the play declines X. start that Xst number startup after March We start happen year

the January-February commodity being of many increases of timeframe, So, Southwest, the book, because in non-traditional of were time going in have that the book is segment we lot the a starting but necessarily. be in growth not up the averages Southwest, that up, the in producers that point Midwest in a that Most slightly. quality was again growth not the of a the generally it book, is in the to of so

Michael Gough

expect understand was there. continuation [indiscernible] the continuation loans the if would I exactly anybody or one, XXX,XXX at we loans, classified look the charge-offs that [Indiscernible] at while would million from. in by charge-offs But of grain our that's and quarter, the even on look as which specifically a out we development. right, On would call strategies on if think we about our for and a just real side, grain is so very I be had charged plans XX% a already you look quarter absolutely it, for, every observation vast, going off would it on is add also question of had don't where individual of the of to the surprises. only it's classified to call so agriculture, year. positive been coming provided I vast, Overall, that number I what I dropped charge-off the no say in book, at over it's a you the XX

Kenneth James Karels

think in pointing said a still our up I that's for long consider ticked you because have low, charge-offs and size time, thanks low, small for something out, long, base relatively we when Nathan, a amount And that even still it is very a show very, does of that the lot, ag's that's though that portfolio.

shows long-term space that that in. we so, why And bullish to be in that's great, great we are space a and very why think

Peter Chapman

the year million. to If ag that, on X at look in first are months year six only be I charge-offs

Nathan Race

aspect Great. That's you rates about of rates, with obviously along you within of to curious adjusted that I kind production some and good then call as that's interest expansion to earlier in you think well, price, on just with get so firmer allowing thinking seeing just and changing the and from you're obviously seeing you well. as hear. are quarter gears alluded you loan firmer had higher loan And this yield seeing on good the some pricing a what to are what context competitive pricing, higher

Kenneth James Karels

of third we've work fixed-rate of XX, I it close They loan a high called to think XX-year the a near treasuries Pete of a which about the book, in. earlier rates with are over continue the we locked months, term recently. think had A as few lot XX, I out through hitting a just increase days lot in XX later. the sudden book, last

of the through to so book So, new especially more accelerate, to origination with as rate the average weighted gross continue rate fixed loan loan to book work the treasury and back going commitments, we are on fixed-rate continue the increases. average the

do book we to third with side on that So, the again continue expect the receive well rate the and adjustments. on variable that's fixed as of positive

Nathan Race

it the just sense. haven't we going could one a makes Pete, for I in is expect item you quarter, more decent one-time curious And one fees swap a then is and this it, in last jump this past repeat if this disclosed so if if just I line think Got the sneak to nature? can guys was in forward or that

Peter Chapman

have wouldn't a good maybe was quarter I lower, seeing have we good increased are demand, this lower pointed mean was [indiscernible] I term usual, longer a say It demand for future than maybe rate. this rates, sort but stronger quarters, quarter of so so quarter little lock-in seen client we as increasing out some we one-time. year. a Doug in

Kenneth James Karels

increasing maximizing based And we the that a in probably business We seeing I that pipeline sentiment the large book, pipeline. rates in in that increase but that and interest surge quoting an at track on are and rate just on again or quarter had we I risk. probably we think a are to the again of because loans pipeline, the couple think looking result, of closings helped continues Nathan,

Nathan Race

Thank appreciate Understood. color, guys. all the you. I

Operator

ahead. Please Mr. comes from RBC. question Arfstrom next go with The Jon

Jon Arfstrom

the you a on on little can maybe the commercial bit strength? a touch drivers think Doug, lending what you were you, for question more

Douglas R. Bass

saw of expansion, C&I Really new couple then then a a make as companies of sectors. segment, distribution We relative expansion. couple be based of on companies probably we three that some couple relationships, when acquisitions to service were expansions to on had the and some industrial would first the we about maybe able also well a talk and manufacturing, component,

some economic the new XX% in in you strong about probably Bank to significant in especially expansion so of to So, current to that was growth of that quarter, customer compared Western good Great know too activity, customers area very year-over-year. acquisition be XX-XX in continues pipeline, and our new and

about construction projects, up before, the footprint On up is dramatically we that and pipeline I XXX at side, the is across and the think book construction predominantly as have non-C&I year-over-year. is unfunded talked the

We year somewhere between also projects and very of many on to four term size not depending on. project construction and of look moving cycles at the those, the most because stabilization those are two lender, we as are those

Jon Arfstrom

is And Okay. that…

Douglas R. Bass

more think Jon. that, one thing me led add on I

the new we're to talked I we about the know the past. and continuing from the continued thing think we loan seeing quarter a other those see closings in new in I have offices lift have the are started. every and we pipeline

the nine offices over We traction And to we new several new we're states. revenue we the part and but see years and to offices have also Pete several locations cost increased expense improvement seeing last and mentioned we revenue continue up had seeing think the by of I there are the positive in those we obviously five side, from to leads catch have are versus months, starting from in expense started.

Jon Arfstrom

Okay, Geographically opportunities where can are? good. the on you touch construction, that on

Douglas R. Bass

areas. metro no be cautious are would on in predominately multi-family, be a we bit to some which very be going to going industrial, cross-section It's the of retail. a some little I of depending market. It's say, going and very office, little It's of to

Jon Arfstrom

rural Is I rural, competitive Can split each does the XX-XX. than deposits address flipside make then more And metro competitive are Okay, maybe those? of of metro the one that about good. market believe versus nature this, the of you of sense?

Kenneth James Karels

see in the of on certainly deposits. why And certainly communities modestly The a relationships. those in of rising larger markets and that a lot markets the a we've in diversity? of That's is banking and that years in impacted have got metro on larger represent working very the Does significant proactive the customers and And markets. you in with competitors have competition what been costs are private you that long-term then I increase growth those quarter metro staff business are observation. the we are consumer as the think very the sticky It's deposit was metro we fewer markets, side, of a a and and think certainly relationships we lot more of by would on number rates seeing we I help a and well. had result in good had for we part

Jon Arfstrom

I helps. am looking for. that Yes, That's what

So, it, you. appreciate thank

Operator

next The Please ahead. go KBW. with Mr. question DelMonte Damon comes from

Damon DelMonte

on kind that to to think XXXX markets recently, Have last follow-up entered new coming progress you noted or of the the obviously you additional have you the offices about? just So of you into XXXX, over out I years, about and nine during into so, five into thought expand those. guys mentioned that's look markets if where to either

Kenneth James Karels

a did year plan Board Directors that that plan we ago. on in that started little plan XXXX a are early a XXXX-XX, longer-term in XXXX-XX, laid multiyear on support we and and that beyond, We out executing a the XXXX and received from over of

within far that that As we filed footprint different state probably are for states we nine headed, quarter. are markets new existing during as offices where two in should have our new three this applications be

some there, planned we negotiating we staff in we that probably sourcing laid have preliminary the those the in on are some ones all that are the past are would early the opportunities but until all in those out, hiring before are and on, to to as information progressing working we And nine one until be in and in exact offices fits the formal that offers which should the I we relative are filings do the plans not queue. incur are not we out, for offices still with piece three filings some have disclosed we have of person and Those full-service XXXX all opened that out in regulatory and the markets, would queue And the three hiring loan production say of loan have we in the production that waiting We put additionally place really offices all are near-term. currently We in that are meeting results be in. have finalize of location filings. overhead. exceeding stages of we've to were we we culture, those got

Douglas R. Bass

Really has high our the that. helped year. we It had we us have let to growth been That's what mid what propel loan with has to from guidance last here growth. successful single-digit

working it's well. very So,

Damon DelMonte

is good great, very growth just for along. you color. fiscal continuing to guess favorable this the first Okay, two the year. I That's credit then thanks. guys really have And chug trends been quarters Loan

your wondering thoughts on Just kind the of of of the provision quarters this fiscal couple for last year. are what

Kenneth James Karels

think with right, I pretty Pete, or where pretty much line but Michael have, anything, in yes. in line, much we

Damon DelMonte

that's Okay, had. lot. that all Thanks a I

Operator

next O'Brien go comes ahead. Tim with Please question Sandler O'Neill. The from

Timothy O'Brien

balances X% one, quarter, questions, like were looks Pete? quick Two color investment down securities the in any that, on

Peter Chapman

more Yes, look really over flattish. portfolio. securities the book the expect I the that in to certainly. we loans we'd we'll quarter. XXX% funding to But are Certainly wouldn't deposit. loan for towards sort of Tim, incremental over be certainly expect securities. us following of I put to the loan that explain sort fall would in

Timothy O'Brien

thanks. delays growers Great, you due your grain to any question, any And are of in seeing then planning last conditions? from weather

Kenneth James Karels

catches various we've they the options later, weather, the heat had have, think and but farmers current fields may there or in impact summer very that damper a the and a it while I lot yet of that think weather, varieties about honestly, that in when is quickly. happens of week you a up genetics maturities don't two get yields lot colder and

this it's a If be the at at non-event. about factor, wet So, cold talking sitting weather no but are we time impacts. call next a still here might we and are

Douglas R. Bass

Forecast is warmer next [indiscernible] few weeks too. for very the strong

Kenneth James Karels

our Midwest already. And a we actually portions the got of lot have in market of started planting already probably southern that's

in So, of very only weeks of really looking northern couple we of the a are Midwest. at portions impacts modest the

Timothy O'Brien

at My Anyway, thanks. snow. folks looking are still

Operator

Instructions] [Operator concludes to Ken back conference for would closing turn our I over question-and-answer like to Karels remarks. the This any session.

Kenneth James Karels

us. we very are the had this quarter of Obviously quarter last optimistic joining very for and strong looking the we you Thank proud into future years.

thanks So, us. joining for again

Operator

has today's presentation. you for conference The concluded. Thank now attending

now disconnect. may You

Great Western Bancorp (GWB) 26 Apr 182018 Q2 Earnings call transcript