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Great Western Bancorp (GWB)

Participants
Ann Nachtigal Director, Corporate Communications
Ken Karels Chairman & CEO
Doug Bass President & COO
Peter Chapman CFO
Karlyn Knieriem CRO
Michael Gough CCO
Dave Rochester Deutsche Bank
Jon Arfstrom RBC
Ebrahim Poonawala Bank of America Merrill Lynch
Jeff Rulis D.A. Davidson
Nathan Race Piper Jaffray
Damon DelMonte KBW
Tim O'Brien Sandler O'Neill & Partners
Terry McEvoy Stephens
Call transcript
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Operator

Good day and welcome to the Great Western Bancorp Second 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]. is event this note being recorded. Please like Nachtigal, Director would to turn Ann to over conference of the I Corporate Communications. Please go ahead ma'am.

Ann Nachtigal

and Karl you, good everyone. Thank morning,

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

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

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

Ken Karels

income average quarter. equity with our XX% March million $X.XX XXXX with is up tangible for to the Okay, leading. the XX.X% the is year. efficiency our good call. Expense share over continues strong per XX% Return of pleased of of $X.XX at ratio or remains results quarter We're morning for industry be $XX.X and share and very up Net XX.X%. common second a joining control earnings of thank you the fiscal on

flooding we share stable total XX raised the that from with excess by per the with generate no basis occurred through to real dividend metrics of the to and Midwest. We continue impact increasing parts quarter. points $X.XX XX.X% during our quality were capital capital Asset to XX%

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

Peter Chapman

Ken you, morning, and good Thank everybody.

Looking respectively interest X.X%. to or Net was for income reflected increase was million adjusted margin for quarter of and quarter. net revenue, margin which the million and $XX.X X.XX% interest interest X.XX% an $X.X the

was in down basis investment X adjusted This net basis X portfolio reduce basis approximately balances future due pick up incremental quarters good investment increased increase per was interest we're post-tax below step in also $XXX,XXX little some seen was inflows, it but earnings also liquidity of points point nonaccrual carrying X higher NIM peers. on an on interest of X to area in increase worthwhile income, write-offs and the basis in quarter. running taking sheet margin, Of while quarter we've generate With due This to interest point in And portfolio. the in the thought million the balance limited liquidity margin by to to and decrease over rate points $XXX will up we we're quarter. the deposit quarter risk. additional in a investment

million million costs Salaries to Occupancy to December recognized fees volume million. quarters X deposit by million to due remained should derivative assets on on and quarter, million the quarter. by for $X.X Non-interest below assets by $X.X were in we $X.X on to to and funds points largely prior million in XXXX by stable. seasonal drop reduce seasonal $X.X OREO quarter. $X.X prior to ALLL performing $X.X decline $X.X and charge benefit just million million the item to decline previously by million increases spent. benefits million consulting Data basis fair $X.X some per million million have lower contract due relatively storm-related up through were in current of professional quarter. offset slightly of for annual were the points $XX the value deposit Fed the driven $X.X expense competition as increased million remain in X be previous processing costs in the other $X.X control million in decline guidance of above our $X.X slower $X.X further $X.X in basis benefits expectations. discussed. declined of these fees with following compared OD/NSF quarter. quarter, Drivers expect for growth in products. expense charges million $X.X decline fees ahead increases, crop due increased absence declined increased Non-interest credit of prices revenue income the million service expenses As some around other quarter These started insurance and would $X.X million we markets, which $XX.X by of by But risk is of and loans the is $XX.X the increased by million. benefits increased $XX.X performing to million in after spend the being although also a NIM expense, at and in

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

Doug Bass

$X.X the and flat were prior is the end of Pete loans everyone. good morning, quarter, quarter. Thanks, March to billion which At

Iowa balances and of in for $XXX markets strong quarter increase by due $XX be specific in quarter we and by pipelines, digit during year. balances which development Growth XX% $XX C&I quarter construction Ag segment the mid and $XX in in is commercial rated followed more draws for our would any in softest weather. As due as was event $XXX we million this the expect period growth many The with and slower industry. to of real real South about for to the We of range occupied of calls, of in current XX% commercial also Construction to full December million owner the as comprised year to estate weather growth estate. With fiscal one commence the exposure Agricultural conditions downs. Dakota expect and previously across million quarter due prior Growth see this accelerate growth positive equity during owner We comprised funded due move construction still are repayment single during can as real fiscal flagged planning quarterly the on orderly also million million is approximately our increased to the sale no projects. in $XX seasonal to the the Ag better of fully invested came pay remainder estate advances the was Colorado, downs footprint OREO. nonaccrual with decreased control real would balance with Nebraska. and concentration the and made and million we quarter as March seasonal to existing in tax pay improve collateral. of substandard seasonal typically on growth our a

December branch to institutions opened higher with relationships lenders. also risk, XXXX. North continue to were in crop input the non-traditional also our in and to work higher Scottsdale pleased We agricultural other which We new refinance operations leveraged with

team specialize excess C&I aggregate the experience have that comprised of X years bankers Our in Phoenix that XX seasoned lending in is market. in of an

consumer the continues the X during company on that was strong. quarter. during quarter remain hired C&I during to growth or We with the quarter inflow we've growing metro million the focus Additionally, markets Deposit experienced balances balances bankers lending. were flat. in did X.X%. $XXX Business Deposit continued account quarter consumer other strong largely in across see the competition million $XXX

show movements. have to footprint. weekly However, ensure seasonality post across and we margin, To the interest not we net review Reserve's loan promotions on raise March. quarter acceptable deposit to quarters interest our will of teams that the due base, views upcoming see modest with fewer in decision customer high Federal the regional consistent to to rates the meet Consistent prior rates deposit rate leadership manage returns

the We will and do pricing sides proactively to sheet. continue of balance both on this manage

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

Michael Gough

Doug. with remaining improving you, quarter during with to asset across quality we Overall, stable quality the asset are Thank metrics. satisfied slightly some

for of credits Northeastern and relationship is only expect watch impacted branch area, loans $XX did substandard earnings has land with Before low levels. portfolio million we Slide levels at of non-Ag OREO. realized upgrades and the commitments watch to the is we December have the refer performance Southwestern for we basis largely of million the it balances loan very loan been across points we reserved. the on $XX charge are on the of release call, Compared for the where that Also portfolio far of a in annualized in quarter, to million, the were and with the saw one $X.X that small the loans Ag Midwest. quarter, take With balances portfolio. OREO impacted quarter into charge the million XX that Iowa, our Substandard you run substandard to December on charge we impact large points X million and minimal presentation, by to one from offs our flooding losses loans offs portion respectively to have to so at a the of most the earnings $XX credits previously non-ag Nebraska offs increased if $XX closure. quarter. basis and basis we number increase note in to and watch loans elevated have non-Ag XX discussion of important million charge X through slightly $XX due or $XXX Net had a on $XXX where million an and million in decline average OREO In level in accounts consistent off with the XXXX

lease points portfolio term and loans. loans loan purchase loan sound accounting XX for X includes percentage increased total and basis a XX fair credit adjustments our to coverage of losses which remained points allowance points comprehensive basis on at and marks Our our of basis value credit-related as total long

the XX% the due of quarter for grain with We all have the of the completed portfolio majority significant which reviewed portfolio. XX portfolio with credit during reviews represents March of Ag over prior to exposures the credits

For more milk during prices the is increased trends. price have positive the and also future quarter sentiment dairy for portfolio, there

better of portfolio With environment. Ken that, very stressed in modestly let's year feel the some only this the closing remarks. strength for prior of back good sign a we borrowers the which turn to also from leveraged remains lowly Within to increasing grain is the portfolio than the in XXXX. the call expected grain loan the ratio being this XX% overall low very of range with with the during portfolio The portfolio, performed overall value

Ken Karels

Okay, Michael. thank you,

pleased the are positive our and We continued returns momentum strong very with in quarter. second

pricing were loan the As Doug months, range the deposits you questions. we open full which in in allow remain now raising with year up Great us successful past deposit this continued in will We your would highlighted, And in Bank. raising fiscal less aggressive for be to interest growth and for deposits we'll six million business future. solid. for as the consumer Thank very this rate Western in $XXX pipelines expect digit call mid-single

Operator

comes begin Bank. question-and-answer the question. go from Please And Instructions]. today your our question will now Deutsche with Dave with session. Rochester ahead first We [Operator

Dave Rochester

How came had in side. that stick lower of start that thinking to this end about trend here? we the level decently wanted should this you control from looked It through the Will like Just great on guidance. quarter year? expense below expense this be

Peter Chapman

up bit I'd creep I to as it quarter. just said, we, next a Look Dave, expect

million from little $XX.X sort thought we where below gradual So that there. just sort so of then of increase previously light little and around a

but Dave. of still right. So consulting IT you're annually slower, sort a out do a little, in running and Expenses little going little we've got. to there, that But one little invoices lower the come been well have in continually X% X% sort projects of -- increase slower. just some a from with yes, coming that They're

on year the to expenses. start slower the a just So

David Rochester

great. Okay

on the exposure you exposure only quality. flooding? experienced commitments $XX Are Just in extend mentioned flooding? seeing have your credit in that the you you to a Was that quick one million the the that to markets

Michael Gough

commitments been book the of from to our extent in million we've $XX has affected location our had in and That's million operate outstanding. that branch loan most $XX another closed about in

David Rochester

within market the that overall I maybe closure guess, your a it where sort bigger have just markets is of of that loan had branch located you in flooding? experienced picture total or that amount be isolated that not book nailed you could but down

Doug Bass

Bass. Doug is Dave, this

you credit other have the and areas Flooding noted. and the a total totals precedents Michael of and branch have so one we is pulled widespread know no than concentrations. We impacts as lot that in to honestly in the significant that not markets

David Rochester

That's great.

just then one And Okay. last one.

to You quarter mentioned that forward. Just expecting to wanted NIM through guidance? pressure X of the end X Are the of going understand you that bps XXXX? around parameters bps fiscal per

Peter Chapman

Yes, just next say how Dave, stage, over until now I'd quarter. look this out deposit just competition -- so the at see we until we plays

Doug his As saying that deposit mentioned are in we back to comments, wind costs.

look, hoping this but that next will more quarter. that's stage. So best you on at We'll based help update just information

David Rochester

point On the of unwind the latter with deposit some the increases. at cost

this some you're deposit at cost reducing You said, actually point?

Peter Chapman

a little cost just deposits, Certainly Looking Dave. to And to back wind try to project. looking our those bit. starting identified we've -- higher

Operator

Please go comes next RBC. our ahead And from with Arfstrom Jon question

Jon Arfstrom

follow Pete. basis already that rate? increase. is in run curious a the up margin, The Are you the points seeing portfolio just Hey on X

Peter Chapman

was it quarter this Jon. basis X No, point only

So the we on the did average it quarter. later effect, in

next was number ought it $XXX average quarter on to and the be million basis an quarter. million the So $XX balances only about about and this only was average

Jon Arfstrom

Okay.

a you to -- bit the saying do stability, deconstruct seeing think maybe deposit core that you core lending relative improvement the you it's are saying about or little a so are and when of how you're us bit And piece -- that or that? you want of bank this

Peter Chapman

bump you some the That's loan deposit expect pressure trying costs the of get no that And Jon. couple the manage increases, We fund margin, with decline point still of competition while down, are on don't basis we portfolio. would Fed sort is there to just there. in deposit

of drift I'd we've portfolio. That that's investment outside this point quarter. expect So where change of that of sort couple the made

Jon Arfstrom

Okay.

curious seeing, the anything that That upgrades, you in on for and essentially deteriorating you question anything portfolio. or new upgrades it Curious is there's Okay. watch just feel here? some talked from stable makes sense. you're if like about list you, Michael, just Ag I'm that

Michael Gough

depending answer different the Really, grain on sector about, overall. talking you're the book,

do did I better. really think

results in have mix, is reviewing good than But the had going the grain as downgrades, of we got book. XXXX We more upgrades round There's more a news both upgrades through downgrades always the ways. some always. than

seventh classified one other planned if tell XX the next pay so top on you in days think I that one. Now look the the grain, over I book was our exposures, thing, grain XX a you our or would at biggest with down

been the You point any least exposures some won't -- pricing at also trade year. later seeing performance hearing but for problem time. improvement. million on are Dairy, in -- some expectations have grain cycle over know in $XX the group from based information we a better low present from has And major some have its we one at we at

Jon Arfstrom

less kind sector? you pricing Okay. All or terms of know right. better But in of competition And are then competition It's you I in because oddball in have big Ag. competitor there. question a seeing an the

Doug Bass

pretty the over a consistent community very farm of few have not smaller honestly are basis in is depending exact we The sector. the remains we changed institutional basis request do XX of points and banks, the the companies credit this because Yes that on Jon, lenders see returns in points years. and are -- really insurance XX active last Ag probably higher Doug. to still Yes, lot competition

Jon Arfstrom

for thanks Okay, the help.

Doug Bass

a And number regionals as are active still of the segments. well very couple large different in the

Operator

America go from Lynch. next with our question. ahead comes Poonawala Please And Bank with question Ebrahim your of Merrill

Ebrahim Poonawala

Pete, just the to I go to back just clarify. margin wanted wanted to again,

expect margin. because you to basis book the pressure X points said, you of So the incremental in securities

Peter Chapman

Correct.

Ebrahim Poonawala

another to points. then X basis basis points X And

Peter Chapman

Ebrahim. Correct,

Ebrahim Poonawala

XXX -- XXX XXX? and So then

Peter Chapman

Yes, correct.

Ebrahim Poonawala

that Yes, how in points, to overdo more terms basis down Understood. this liquidity, a a want know we okay. sure didn't X growth you to bit guidance? growth the mentioned drift quarter. went maintain loan I your the higher. just so think at of to deposit that of point in seeing it of Is about points basis about to And start we growth loan I make terms wanting you deposit should where so X then because that. And to ratio, XX%

Peter Chapman

to side typically quarter quarters, drift You'll outflows see that couple some and see on the loan the of things. this up next of We deposit Ebrahim. over deposit next ratio

So quarters. see of you'll drift couple these next over up that

Ebrahim Poonawala

sense. in the Drift didn't We next of capital buybacks. any up guess or over quarter. return -- this And terms makes I do

when Just wanted what's to understand ratio you capital from return? and the that a the appetite to looking buy about back at constraining stock you're ratio capital standpoint think

Ken Karels

X generated X Yes we the what capital too. Yes at, here. continue will Pete -- or on just Obviously, buying Ken, we it we're -- to look points will stock what again but Yes ratio definitely, basis higher. back here. know probably basis at points

with need So raising acquisition, an the our to dividend, do even return capital unless we investors. we to

to that. be So of very the probably easiest And do way buybacks. we'll doing conscious stock is

Peter Chapman

ratio not at the healthy we're capital Look, -- perspective, pretty moment. from a Ebrahim, we're

So ratio. certainly by constrained one not any

As and quarter, bit said, the active up the dividend then have nothing if look little of Ken horizon at we a future. certainly there's may in a will M&A still the again this be on we

Ebrahim Poonawala

Understood. think actually some M&A But like level start getting And we wondering, conservation. anything discussions are where to a a higher progressing? seeing transactions? is from banks point of the We've on market about heard the you if just other

Ken Karels

of coming of We're seeing from down little bit a signs pricing sellers.

more few pipeline Our last it in quarter has it. had than a got here

cautious we to So That's it -- just shareholders. doing in are acquisitions depends. doing price. at right we it accretive are and I very mean, the our

can't to seller look. we -- predict we to hard prices, continue so. But they're And so here determine because

Ebrahim Poonawala

taking for thanks questions. my Understood,

Operator

question D.A. go from Rulis ahead. Please Davidson. next with our And Jeff comes

Ken Karels

morning, Jeff. Good

Jeff Rulis

fiscal year-over-year. of guess the and -- down kind I you seeing kind guess of year-to-date you're what outlook mortgage XX% the in I be item? may year thoughts on that of to line down, balance what Any On banking side, the year-to-date are close

Ken Karels

And I a construction banking sign a again activity. segment small very, in But lot us and mortgage home see will with pickup non-interest think, income. it's for and very the is markets we seasonally, our and of purchasing

rates material on pickups see some be to for a it's seasonally in comparable prior not or next XX-year a again, XX-year years. in But be I should us to material we'll favorable think swing very interest quarter and still and options company. continue and the this focus which

Jeff Rulis

the the look in Pete, of comes Okay. guidance kind on loss then, big up expense -- if drop, the that just a expense obviously just is maybe on maybe at level? sort of normalized part to your side And that the again repossessed property, on back you a more that

Peter Chapman

Yes.

I one So got sort spoken better than -- better and we've Jeff, hold sort in think previously, $XXX,XXX in a large there expected quarter. around that's that of of a so that property in about little we that's why a came performing We've actually forecast costs. this little quarter bit

a up probably expect I'd yes, a drift on and then side the next back expect to So the salary maybe over quarters and say two bit as just little bit up that, side the come to well. consulting little those

Jeff Rulis

deposit what or Okay. lower to the is the attempting are like on CDs Pete trying comp And products are you lower? that you other typical that to --

Peter Chapman

now. just much a public that working as much down on the main couple were ones. last very well think I actually as of those pulled deposits so And well fund CDs two the quarter, those Very we've also Jeff,

Jeff Rulis

I one, And for last Michael. guess just one

Ag said had point? -- XX% at of complete is you review Just you your to clarify, this

Michael Gough

lines through measured is time in did XXXX. XXXX the we That December correct. sector of which grain that of What came of most is of absolutely March due forward from we year this

did have at and may make there been Those of have but other XX% those what a a problems. take you look not couple is that sure correct. small We service of didn't been and debt to we But are any through is said metrics extended exactly have we left. percentage completed,

Operator

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

Nathan Race

of quarter from quarter it credit charge the perspective. sounds looks the and to improved back offs this the just Ag for accounted the curious. quality like Going in It a like grain majority quality credit discussion,

this what just curious, of offs quarter? So Ag were the drivers charge the specific

Michael Gough

which the instance an been that isolated quarter, largest cattle was in driver sector to we largely would of think large have one somewhat the was This due cattle but operation.

Ken Karels

also into OREO that And that the that... went item

Michael Gough

when OREO; there big some we that we had we And what take into as reserved of parcel moved charge-off correct. well. been did as Absolutely took

Peter Chapman

interesting off, and outperforming Ag of portfolio kind even after it's look portfolio you charge the our Nathan, when greatly. our a return C&I take it's at

the in that niche something is serving well tough even us in we that's So have Ag times.

Nathan Race

and And size discussion. color. size absolute or securities the kind That's back portfolio of kind curious, can of in of just of grow deposits in in kind to about some great. you just relative Pete, how helpful you put intend going terms of growth be just if parameters the to largely Very it portfolio going you're borrowings funded going a on the that -- securities by that as portfolio is growth the or wholesale forward? of to thinking kind terms or

Peter Chapman

most Yes, it or up at slightly spot -- step of sort this growth deposits by coming was for quarter funded we flattish said I'd of quarter, it then million up that, Nathan to FHLB. would expect sort the million organic quarter, be for but was it to and a as $XXX on $XX Nath. increased moment this about basis this the only probably so the where we the did the where average I

Nathan Race

swap if what tick Okay more half could fiscal lower in by XQ. I fees, on in of saw just one we and they the quarter about understood ask -- in

of fees year. how into line over So of any if this just sight you trend the curious have could balance swap

Peter Chapman

consistent with but Last, couple we are can't a you those of quarter. every deals forecast more Probably that last. big than great this had quarter

probably, this in say So with more quarter, Nath. line

Operator

Please go KBW. next DelMonte from our ahead. comes And Damon question with

Damon DelMonte

guys. morning, Good

questions per level? kind circle little this revert quarter than So to we've we $X that outlook could back if a -- to But of answered. was quarters. previous mid upcoming in quarters. higher seen quarter the provision we been bit million most just what think Obviously back you the of have my for Do

Michael Gough

would the I that expectation. is be Michael. This say would

Damon DelMonte

pretty much everything And asked already. was then Okay else answered I and guess, great.

you. I that had. So all that's Thank

Michael Gough

Thank you very much.

Operator

our go ahead. with question And comes next Partners. & Tim from Please O'Neill Sandler O'Brien

Tim O'Brien

Thanks.

clean Just more one up.

the The million. was other story income that? what's What behind line increase -- to $X.X

Peter Chapman

Other? got a -- incentive of from through quarter. I a ALLL. NIM, for out debt Tim, a of about things -- that thousand we Unfortunately the those couple in was a of Mass. there's incentive million and bulk incremental volume an that got Yes, reps a called couple there. $X.X we made the to two other just -- hundred a that items that in up few there's

Tim O'Brien

Those are non-recurring hopefully.

Peter Chapman

Yes exactly, Tim.

Operator

[Operator Instructions]. And Terry with our Please from next question Stephens. comes McEvoy ahead. go

Terry McEvoy

Thanks. Good morning.

Ken Karels

morning. Good

Terry McEvoy

wondering question was I fees, a know but overdraft it in on just service you down the coming the offset cards side, a the management a mentioned a NSF/ODTs, tick decline up that expect - in an year down down I credit for We've on well quarter of this A amount and performing it true. I XXXX? But step about are Yes release with seeing would fees first next on. for the we it talk Peter expect slight Terry. just able us. you increase that consumer of down tick to the is and Just quarter Chapman charges, was but cash line the was the the fair nonsufficient year-over-year outlook have in down I from business if year-over-year. could throughout in year-on- been quarters, business over But very couple some been to increase

Terry McEvoy

up, or C&I follow that pipeline. the just today? industries out Any Thank markets stand you. specific then And

Ken Karels

and evenly. nothing distribution It's Nothing, really. geographically not really concentrated spread No Manufacturing, Terry. either.

and of experiencing. a start months we're think, of it's the months, six months and I eight on to time the build C&I are because takes XX seeing of the lot about focus XX last been bankers of what that the we for hiring pipelines that's --

Terry McEvoy

guys. Thanks, Okay.

Ken Karels

you. Thank

Operator

And may conclude your We'd like today's time, today's conference. will at and our this question thank presentation lines. answer disconnect and everyone session. for concluding you Thus this attending to