GWB - Earnings call transcript Q3 2019 | Great Western Bancorp, Inc.

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Operator

Good morning, and welcome to Great Western Bancorp, Incorporated Third Quarter Fiscal Year 2019 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Joining the call this morning are Ken Karels, Chairman and Chief Executive Officer; Doug Bass, President and Chief Operating Officer; Peter Chapman, Chief Financial Officer; Karlyn Knieriem, Chief Risk Officer; and Michael Gough, Chief Credit Officer.

should Western contain to subject differ forward-looking risks uncertainties Great today's you to from started, actual and may company's presentation statements that those getting discussed. will to remind like that certain future Before results the materially cause that are Please the the for filings a disclosures discussion of forward-looking contained on the presentation SEC refer company's our website periodic risk to company's factors. the as statement in well as full

should on not Great the financial note, is being measures measures and non-GAAP today, actual and discussed to to non-GAAP are of will Additionally, be performance appropriately recorded. call. referenced this measures measure non-GAAP event within conference be are relied Please as assist financial and Reconciliations certain References presentation. you such Western's a trends results. provided only in understanding for results included upon the

Karels. Bancorp's Great I Chief Executive would to over now Ken the please conference like turn and Chairman the Ken, proceed. Western to Officer,

Kenneth Karels

Okay. you Good for call. morning, joining the and thank

we asset there with out. this of number matrix the to positives quality disappointed still a feel are we quarter, While were point

the With charges, profitable million. remained the with credit net $XX.X of we quarter income for elevated

with year-to-date. of strong with year. fiscal very on remained common ratio return at equity efficiency our returns Our control was tangible quarter the XX.X% XX.X% and average fiscal this good, for a Expense very XX.X% for

quarter, and interest strongly remain to net capitalized with with capital the continue prior in performed We previous remaining better levels margin guidance. than line

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

Peter Chapman

everybody. good and Ken, morning, you, Thank

of an X.X%. million the revenue, interest to income Looking or for $XXX million $X.X quarter, reflected which increase was

margin margin interest for X X.X% our down and X.XX%, interest basis the with margin interest respectively were adjusted quarter-over-quarter. points net net net Our the quarter, and adjusted

increases million contributing partly additional X in sheet Of by portfolio X deposit was we respectively. by point on quarters. a point down in quarter, last to X reduction basis to it's increases prior offset with Also, $XXX the yields basis points is discussed the loan going see driven that basis on in the which investment balance and decrease, liquidity these costs slowing, NIM,

by for the during banking income wealth was movement and $XX.X of an variance at the fair million. of $X.X in an driver Noninterest million million credit-related in loans to adverse income the million mortgage quarter fee main of increase Outside the $X.X swap The charges lower volumes management increased held to and and DVA. decrease modestly all $X.X decreased related and income to value of charges, service items, on CVA an due during sales quarter these quarter. unfavorable

a million, expenses within million $X.X in core lower million, were $XX health amount, of care $X.X by million. the was decline by this million Noninterest declined but benefits for this and $X.X for the and quarter. by increased salaries offset Salaries quarter, costs $X.X

seasonal lower on mainly by -- system Data communication and facility. cost due $X.X expenses of processing declined by new upfront a project expenses $X.X a on an credit million seasonal spend to million, due rollout. new million $X.X and to increased Occupancy spend

more President our Officer, deposit to Operating turn Doug on and Chief Bass. I'll For now growth, and over Doug? loan

Douglas Bass

improved This XXXX and and $XXX X% X.X% or quarter were which draws good to growth to construction or fiscal million conditions everyone. the was compared It see good during to Pete, the At morning, billion, quarter brings is $XXX seasonal June commenced. million. Thanks, quarter. up end, $X.X as year-to-date growth loans prior

some in remain of we mid-single-digit by We the work year credits. offset full for pipelines, problem softness as ag through in and these growth confident good likely with balances continual

real concentrations $XXX real estate or the geography. segment, of nonowner-occupied in specific increase comprised for no million Growth quarter with commercial sectors was in

Iowa. segment and million, Arizona the growing Colorado, and this Nebraska, owner-occupied across the reflected quarter. on portfolio, large grew commercial which balances combined On $XX progress real occurred basis, of impacted nonreal good a paydowns during growth estate which estate commercial The not irregular by was

The which office, reached opened loan sector. in XXXX, North $XX December the has now in balances, most is in million which Scottsdale C&I of

production Our been Iowa loan reached Cedar year-to-date where converted growth opened production Yuma, has We million and $XX less year our Rapids, office in service than Arizona branch, full a to been XX%. has X has just balances. loan in loan loan office

the million the Iowa some $XX term in of debt decrease to other debt decreased to asset due with balances refinancing lower in attributable during lenders. reducing Agricultural quarter, Arizona, balances dairy relationships some to and the via sales

We have also industry Midwest the seen as is seeing the in profitability. sectors protein lower good hog in draws on operating lines the

during the contracted the decline The in or more Bank main in brokered million a of as million has quarter was balances source the quarter. X.X%. balances by Federal during Loan been Deposits $XXX reduction $XXX Home cost-effective CD

the $XX of in million consistent which In fund timing and addition, prior seasonal and outflows areas million with public consumer of there years. portfolio, in is were $XX

a X.X%. With year-to-date on quarter, noninterest-bearing we growth for fiscal increase an the balances $XX seen to in business, C&I focus bringing have million or

part we the increase deposits cost of in the start quarter, saw the of reduced we deposit in as to the rates During the quarter. promotional have slow also latter

well. market the rates move Reserve. anticipate We've with rates reductions also money Federal deposit by We further begun upcoming a to potential reduce in as

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

Michael Gough

have numerous first I'll dairy portfolio, touch our which calls. earning quarter on in discussed Doug. prior we times Thanks,

milk the cash quarter, flow than most results loan below providing were have of some borrowers June 'XX weaker of to quarter debt service requirements. during typically received covenant fiscal the XXXX, we expected, reviewed year-end to audited accountant our fourth or lower Due During financials. prices

portfolio from of we the the downgraded dairy the are some million loans portfolio, not $XXX the for to June substandard increase do are we XX% collateral approximately and accounts Substandard. maturing While have this XX% we borrowers view and come there year-to-date. strong provisions to in quarter, in believe have Of

seen borrowers flows have borrowers we these start prices calendar cash from year. continue the have the closely, more as since and to XXXX, improved of in positive milk We will monitor

operations the workout cattle from accounted number will the operations for a these movement which beef increase, remaining the process. number we of now small a move through of for with the quarters, majority, monitoring that in we coming been have For

Charge-offs close for cattle to believe have million amounts related the were of related a are one charge-off for involved. resolution. the $XX.X to and But one quarter. $X fraud this, periods attributable grain $X number Of moving to we relationships was was million monitoring million and under been we remaining relationship $X to and that troubled C&I where that million cattle customer

balances This will you we across the the that and that provided Substandard ag-related Substandard as Slide release well deck. our portfolio on have For charge-offs, earnings while shows of as Watch X see beef breakout have charge-offs Apart dairy, to the risen taken quarter on to of from behind this this improved other put the parts most metrics. balances stable us. these the portfolio quarter due are across portfolio or more

were credit-related and specific quarter, we for to the charges the provisions. just million for to that I on Credit-related the the When due loans general derivatives are have appropriate and downgrades quarter. we levels million provision losses have ensure charge-offs value overall elevated $X.X look of was discussed. and these for at required $XX fair at held adjustments loan The

year-to-date With June ratios, XXXX. the respect quality fiscal asset to through for to of net XXth key charge-offs points the

on lease loans loan includes long-term XX an of of and portfolio prior our for Our June XX, points basis quarter, is adjustments X points as at increase losses a fair credit from value X.XX%. total marks and our also credit-related which to percentage purchase basis accounting comprehensive 'XX, the increased and allowance coverage,

call the closing to turn let's back for some remarks. that, With Ken

Kenneth Karels

Thank you, Michael.

While the asset throughout dairy. the asset our we portfolio were outside movements with are this with quarter, disappointed pleased growth loan the quality and quality we

also we've cost the manage and been manage expense are funding that We pleased our our base. of continue to to able

for open up will call We the now questions.

Operator

question first please Jon Markets. comes from [Operator Capital proceed. Instructions] Jon, Arfstrom RBC of Our

Jon Arfstrom

you. Obviously, not mending of a made that for that the looking have is new and morning, we'll about Thank start rearview comments this? is Michael, this you're Or weakness, any other happened think is may you seeing wrong signs to about here, late the things not credit. bit problems any I seeing the emerge? with dairy year, last message And a and some mirror, way basic Good guess, of guys.

Michael Gough

way I Very that's at look think question. good right it. the to actually

As the to book. of expect quarter but we dairy, year. this noted prices in milk have repeat we don't the our loan already of that key in presentation, markets where have sector improvement we our certainly shown in see And this a

Jon Arfstrom

up that At And way historically, was it this back balances the this is this the likelihood the substandard you or down the to basic in come see of provision provision low? fairly NPAs we can message Okay. where and charge-offs. point, ending see

Michael Gough

not fourth XX. we're going quarters, to coming think ended including the and would June quarter get prior see in average, back the downgrades I the to provisioning quarter

Jon Arfstrom

then it the ag-related kind I Okay. specific And you're parts bigger to then, of in other or are any other I of guess, but weakness? the what bigger-picture any you doing, question is, These before, just other non-ag-related? asked picture, of seem portfolio, pretty any signs weakness things but other seeing

Michael Gough

right sectors, by nothing It's now, seen that dairy sectors pay attention no. economy, are of to to now But what moved morning. the say. where Right we near discussed other the issues that be and answer that but is overall we've always stream that have we there the this be already plenty really cattle would been can I'd the

Jon Arfstrom

right. Appreciate All you. it. Okay. Thank

Operator

Our Rulis next Jeff Jeff, D.A. please Davidson. question proceed. comes of from

Jeff Rulis

morning. Good Thanks.

Michael Gough

morning. Good

Jeff Rulis

of guess margin hear you kind about kind - just expectations tackle guys didn't I the talk there. I front. I'd the of

cut. I rate think was some there on thought

kind that of on be the see yield type that just you get kind the assumptions of curve I on outline Thanks. rate of to level just also you with outlook on if use, would take what of So could great. kind wanted cuts underlying we'll your margin,

Kenneth Karels

Jeff, to certainly, yield curve. we're forecast not trying the

last than go is other X really won't I this than quarter. into that than quarter probably we what points to or So X better margin guided book

I think done deposits. job working the of team higher-cost some really has good down a

if to cut plan And a pretty we've again. there good move costs deposit place next a week, is down got as said, Doug in

you want we've some much that we we've to good we into to been this give don't And quarter quarter. think but can do to us on got guidance margin work I at next think certainly, help also. get So there, too it

Jeff Rulis

I between thereafter. -- is in the increase just bit base the cut -- by was then better being expectations last level changed guess, So quarter guidance, than all If now and kind the only new equal, quarter rate that and perhaps, margin I your we of mean is that. a things that the this I were probability. results reality, of guess, thing

a changed the next you're bit Or just the beyond could that, little guess that has has just So not? more maybe I quarter view margin? you engage maybe how with on saying

Kenneth Karels

such. as Not

Jeff. way, right the exactly it at looking you're think I

So a from it to we last guided through base, continued little as quarter. started higher work

we're can way. and to It's the us loan and seen a to as spread down but point hopefully, where that about right thinking haven't well, environment. you're a help in there yet. that we as Now rate going get But expand it to start

you any questions, have Jeff? So other

Jeff Rulis

Okay. Thanks.

Kenneth Karels

much. very Thanks

have other we questions do any there? So

Operator

next Our Bank Instructions] of [Operator Ebrahim, from please Ebrahim Securities. of America question proceed. comes Poonawala

Ebrahim Poonawala

guys. of in terms if morning, content if I Good this, loans just these would you missed appreciate but to, or they delinquent. on I'm the go can substandard loss when sorry talk

extremely loans? how loan dairy Just we have in That about you and when could portfolios losses think the be the the and that if can these how to bad address collateral think will goes potential we the and loan-to-value about cattle helpful. on the

Douglas Bass

back Ebrahim, in overall out, Doug that expense. Substandard overall very leverage had in that the expense minimal -- credit ag and is sector as provision to lower Again, quarter, with component the Yes, last we dairy was in of was to increase as mentioned called dairy, categories reflective there of a relates Relative it here. the well. an that and provisioning

Ebrahim Poonawala

should mean material this that translate provisioning criticized forward? into takeaway? So in or go losses does as not the the we fair Is that increase

Douglas Bass

a couple being, lending the leverage than again, And based operations overall fronts commercial on collateral the Yes. lower I of the on categories. base, of think that again

results term. we the activities, at near trajectory, prices, 'XX see as futures of then year-to-date and that when continuing and profitability and in positive 'XX the cash Michael secondly, and flows mentioned, look milk And positive way prices we in

Ebrahim Poonawala

mentioned portfolio. And grain went quarter, think close are sort would the peaking of I you out XX% say terms of because to of you -- last we you through in

You've gone got financials. through cattle portfolio now -- the received dairy, the

things if where loan -- So with caught that should we fully book are you we up and given or assume should anything, substandard out decline see are criticized you flatten here? from the loans,

Douglas Bass

grain sectors, given commodity trajectory interim prices, protein and received in of some we've prices, values. results XXXX Yes, giving all commodity -- prices, information growing conditions, Yes.

Ebrahim Poonawala

-- is headwind becomes just about think of much loan that this it. in run time? for $XXX these you loans you potential as quantify could off? these a last sheet over of terms of would any that Got that we to to get some Like growth million And $XXX to provide like on balance there -- of is how off million, if the question

Douglas Bass

sector think given the and C&I across able areas. out we functions, pipelines continue down little answer million ag The would we was a And and geographic have to ag I in both increases declines in the estate in overall. be we commercial yes. real called across it all sectors, quarter, support other over X.X% growth to had commercial And had, we in be, with on Yet front. as this $XX

is segments doing we year-to-date It's result. still digit reasonable. be it other mid-single yes, well, So a believe with but a headwind, will

Ebrahim Poonawala

terms helpful. margin. your - Pete, on the comments That's And last. in of one

previous you rate think quarter. of to right that's to Am basis kind correctly? I your think cuts? you with X per X way hearing even the I was down guidance points the about Fed think it, Do

Peter Chapman

term, see we'd costs. the Yes. little of on trying we're to as new I still work through said, bit But a deposit Ebrahim. Look, I those think pressure

So work better we last we on we this did quarter. to And quarter a trying as can. just we'll much little keep as than bit forecast

Ebrahim Poonawala

Understood. taking Thanks my for questions.

Peter Chapman

Thanks, Ebrahim.

Operator

from please Damon KBW. comes proceed. question of next Our DelMonte Damon,

Damon DelMonte

guys. portfolio. is -- the Good morning, versus of the Quick percentage Hey. fixed? on on loan composition What floating question

Peter Chapman

-- pack gives investor that in to go you. slide, our the our it to David, on you If

use some it's that we've XX% same generally got we've floating. and is And one over So historically. That above that. had adjustable then the that's

Damon DelMonte

Okay. I can - I'll track that down.

expenses. a on quarter-over-quarter. Okay. And quickly decline just Obviously, nice then

going think part think I we of about rate lower attributed forward? expense guys that run the How health to costs. should you care

Peter Chapman

lower with that came wouldn't Yes. It's one. we event. think previous the once-a-year claim little And a happen it'd this cut, health had sort a be claims, still to in I quarter, now which quarter. its guidance, update Look, we care just type of We've had I care care Demon. health next in reserve and lower health that a assumptions expect

previous them be little change would with not and So still huge to look, I than expect higher other step in but that. guidance, a line

Damon DelMonte

I will out. Thank great. Okay, step you.

Operator

proceed. Sandler Our Tim O'Neill Partners. next Time, question of and from please comes O'Brien

Tim O'Brien

you. Thank

adjustable -- active Just guys your questions fixed. about floating floating on a and follow rate on you Daomon's have Are do or loans. floors rate you

of production? you -- on Some -- into rate those using are those how all, for at incorporating in if are you to covenants new new What's the to preparation -- -- cuts? those

Douglas Bass

Tim, this to your Doug Bass. question. is Yes. Yes,

floors LIBOR in rate all prime or have whether We variable, based. typically

resets treasury. that of would also on insert loans to We floors current adjust

Tim O'Brien

come those active activate of the some are down to them? need floors now? to right And Or rates

Douglas Bass

of I to No. say, term would on curve. need activate variable the the to today with that some rates on side resets the treasury will down come

been may of Some have those impacted.

Tim O'Brien

lot. All a right. Thanks

Operator

of Janet, Lee from comes please JPMorgan. question Janet next Our proceed.

Janet Lee

Hi, good mooring.

us borrowers more for each dairy involved credit issue many are you in were color on give truly little maybe and beef, just like of you C&I identified loan for issues? cattle, and Or Like these could these how and each bit one-offs? a systemic? each more So credit whether size reserves little

Peter Chapman

Yes.

increase the out most generally it, So we that type we the dairy piece talked that information specifically the think is of don't give on it. that I of by size usually borrowers on

get before, all then well size. secured into little reserve so but these Doug in as out on pretty pointed it, needed I specific credits specific think credits, we very these with are we'll

size, cattle for of Janet, side of from on handful largest charge-offs at the things amount talking that. $XX on they a the the roughly, than less beef, vary maybe to million million the we're wise, and quarter, Credit $X is

across So I wouldn't systemic say the portfolio.

Janet Lee

bps Okay. it's on to deposit X And this good the costs the quarter. NIM see front, only rose

forward? So that is marked we say it should going seeing quarter-over-quarter on June peak start decline basis to a and a fair the quarter

Peter Chapman

if we've certainly the so. strategy that. out a that hope week, decrease I said next pretty place we'll that here Doug in quickly We'd Yes. after mean got Fed Janet, roll

that. will and we'd -- hope that assist in So

Janet Lee

specific impact I rate every know just one. but directionally cut you're bps not Like, And much Fed? would on your NIM? last NIM, for by Okay. XX that just the giving how guidance

Peter Chapman

Well, depends that loan Janet. spreads, on

go So on have into to guidance are specific loan We'll sort protect play how to of spreads won't out how just want there I much people that. people see try to and -- that.

just we or deposit managing rates that managing interest did think I down quarter costs of this good job last down. costs interest a in

Our beta other increases us deposit a leverage we some rates within more to to leasing pull in and that of some curve rates there ahead of rates was higher I went flexibility anticipating margin. think lot the as banks were gives up, maintain

Janet Lee

taking from it That’s for Thanks my Right. me. question,

Peter Chapman

much. very Thanks

Operator

Next Jaffray. question proceed. comes Nathan, please Piper of from Nathan Race

Nathan Race

Good guys. morning. Hey,

Peter Chapman

morning. Good

Nathan Race

back Fed X, maybe maybe X as expansion yield you the that think us the I September core loan trajectory about rate help back was was If if yields as core of at going Is basis yield taking loan simple here Just the fiscal Pete, hikes, just average last inverse I just and to the that following the question. wondering could loan just thinking there XQ? look an trajectory of for in it points? quarter. kind of of about

Peter Chapman

that probably one, it's right a little but about way, thinking about probably in Probably, high. X about X That's you'd -- or on yes. the it be

Nathan Race

quarter fraud. curious if these that then ask just issues just Okay. the credit Great. a a could And handful on question to were in given of just I quality. I'm related

anything review a or the credit issues? these of monitoring from Just has changed process wake curious in if

Michael Gough

yes. good to very bolster Michael. and somethings some one. and especially think enhancements that first I'll well, as processes, the short take because a at fraud. looking our The is of other at done the already is, we're answer we've This question, We it's internally crack

Nathan Race

Okay. the guys I questions. appreciate taking

Michael Gough

Thank you.

Operator

for This our question-and-answer Thank today's concludes conference The session. concluded. now has attending you presentation.

you.+ may disconnect. You Thank now

Great Western Bancorp (GWB) 26 Jul 192019 Q3 Earnings call transcript