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Great Western Bancorp (GWB)

Participants
Seth Artz Head, IR
Mark Borrecco President and CEO
Pete Chapman CFO
Steve Yose Chief Credit Officer
Jeff Rulis D.A. Davidson
Terry McEvoy Stephens Inc.
Andrew Liesch Piper Sandler
Janet Lee JPMorgan
Damon DelMonte KBW
Call transcript
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Operator

Good day and welcome to the Third Quarter of Fiscal Year 2021 Earnings Announcement and Conference Call. All participants will be in a listen-only mode. [Operator instructions] Please note, this event is being recorded. I would now like to turn the conference over to Seth Artz. Please go ahead.

Seth Artz

good and operator, you, morning, everyone. Thank

Chief for and Chief us Steve review Chief Karlyn is may today's today's today's webcast presentation Chief call, President Borrecco, Yose, Knierie, and results Relations to Officer; Mark forward-looking contain available have Credit Officer. Executive statements materially earnings Officer; The are for we subject Financial Joining Risk and Investor Officer; ir.greatwesternbank.com. those for like Chapman, may website download discussed. through future to presentation We'd and cause uncertainties differ from that risks at to our remind Pete actual you that that

XX-K, Additionally, any measure results. and risk Please trends and forward-looking you performance measures, and disclosures with XX-Q Mark assist non-GAAP of should quarter's other outline statement refer the not periodic to With of call Borrecco. turn over further and to actual the this SEC, our upon financial along reconciliations disclosures earnings as financial all are to for non-GAAP that, I'll be factor which materials an contain now understanding a and provided filed in results relied such measures disclosures. as with the

Mark Borrecco

thank Seth, you joining you, for and Thank morning. this everyone

increase. for about of am trend thank their and highlighted I of to dividend quarter improvement reduction This our Steve employees continued an but by $XX.X net will continued focused further, excited acceleration non-performing advancement Pete dedication progress, along performance. and of a initiatives, our with income assets, million, elaborate of the in our want and key growth

our million in We for management risk by non-accrual loans. remains a made $XX look priority reduction we As credit highlighted X, significant in improvement quality, Page us. asset at a

have our in $XXX,XXX. one metrics, reached XX%. Additionally, down just That's for loans, other $X.X $XXX loan per we and XX asset our to dividend capital We by now by quality $X.XX of we reduction basis strengthened increased our on left share. deferral in billion. total made payment peak criticized ratio million a evidenced and points has as our from We capital position progress

Our about provision business commercial X.XX% well I million of that release This at is is allowance credits. our rollout small our progressing opportunities encouraged total will following $XX a am PPP, efficiency this for credit loans, quality quarter. of losses we center excluding The ratio of creates the improve this multifaceted manage and bank. platform the smaller our how initiative and for of

fully customers, appointed mission. the this to leadership heart driving us, – This employees, of first empowering At improve create our significantly I and banking We will of our focus client footprint. the Carter her and allow is mission by and strengthening Inclusion great us enriching of as communities. help Director small our the Diversity, Bank's commercial support many, loan support know larger the Macala platform We will will implemented our life better be progress many making our that September our will drive and our which capacity our by first diversity Equity, team on Xst to us businesses allowing in for and also growth. experience, will

remain a and focused several and We which specifically, growth we Iowa. the loan South activity quarter, capital am our While this about encouraged and strong loan taking markets, mature performance our balance Dakota markets. key actions, also I pleased than of total our production was had measured performance growth Colorado the along higher like XX% the increase I in in am on in derisking markets in Springs central with and Tucson, our with sheet more notable quarter-over-quarter prior quarter.

results, financial Pete our the Chapman. Pete? over Financial Officer, Chief a of will call review turn our for Now I to

Pete Chapman

an strong million increase down a make quarter expense million good targeted supported pretax Thanks, resources. everybody. in and prior largely income investments on in $XX $XX by careful the had a and by Underlying strategic credit million, from lower pre-provision morning, focus net recoveries we costs. $XX of We workouts from Mark, driven with quarter, was platforms managing costs, funding of interest and as loan management of successful income and

asset X.XX% were an quarter significantly. while by improved a upside on movement the spread this partially XX remaining elevated point this X at with us focus we X.X% shifted largely Looking decrease income down yields, is basis has average quarter. as basis-point loan in With was balances are by $XX recognizing improved spread mix adjusted asset managing adjusted our accelerated X, on a coming quality, offset Slide XX million funding NIM But, from basis on forward. compared our prior point this liquidity being in loan the decrease NIM, And by lift it This position, driven was quarter. repayments from prudent drag a in last interest-earning XX% creating it gives costs. million to from $XXX that looking quarter, the liquidity quarter, was income cash this driven higher from decline

recovery asset fee NIM are lower PPP than contraction to and elevated liquidity we this are some as Excluding remain maturing. the in amortization X.XX% yields forecasted and expect levels those new and quarter, was near-term non-accrual interest typically

$XX there of fees of Total an million outstanding PPP million this more million, $XX June charges, $XX.X end. remaining. On at fair in income round helped ceased derivative that fee the balance the wealth XX% the Looking million value credit million with the offset option first and the income management income latest favorable $XXX investment with forgiven, total adjustment from to loans being related increase million resulting flat in XX, income round offset of unamortized and mortgage in X, round. A service decline loans over was X, more million quarter tracking first non-interest quarter. and non-interest prior of loans loans Slide an from been was public is revenue. in core interest of are million per PPP than increased PPP with Originations $X.X XX% at Increases million was has quarter. at an Slide which was than $X interest BOLI $XXX the originated of $XXX all $XXX quarter on in originated expense to have in as

at driven Looking cost investments. X, $XX.X technology slightly in non-interest expenses quarter. of employee million Slide an million $XX increase prior were largely the increase and in from was up The by

and Looking our million ahead, driving expense capability, commercial quarter runrate will growth, uplift, support $XX development. $XX revenue key million an to technology per and talent diversification, initiatives banking of

while compared the prior quarter, we provision $X largely of in reduction to factors This of credit $XX comfortable will to levels loans, And improving there for a million still coverage. recapture is with million criticized do on quarter, which a expand in some the overall upon due reflected in outlook Steve is somewhat, and uncertainty and our feel we in economic appropriately recaptured improvements believe are losses minute. we of loans, levels remain and our a reserve allowance

our Moving $XXX in the compared was quarter to X, million end, the at prior to ACL Slide quarter. $XXX million

XX%, ACL a capital fair to PPP On combined fixed XX.X% quarter. with XX.X% a Tier-X million the unfunded the ratios at total to $XXX $XX commitment million portfolio Tier-X million XX basis $X.X our value increase of the loan the to from excluding Slide prior credit quarter. $XXX mark increase increased related – current loans value. we capital see In excluding with capital common during mark loans. equity X, ratio a total recorded and of an our million of reserve, The we fair points long-term ACL, coverage have value ratio puts X.XX%, fair and to addition of

common per points increased tangible per to increased equity book over tangible Our share to and X% XX share. $XX.XX ratio basis X.X% value

in both to environment, our we the per $X.XX for XXXX. current capital the and We'll Given XX, – level assets. asset capital increased quarter of dividend evaluate the close conjunction continue in the quality classified to with ended June share management improvements

Looking deposits with quarter. the at were Slide flat $XX.X of prior XX, billion mostly

average non-interest-bearing as improve prior Our and XX%, well. as deposits XX% average following decrease a quarters, decreased deposits two to increased the X.X%; term continued in mix XX%

from on of X cost Loans point and in basis a and time related other points decreased across sales, $X.X in end at costs. outstanding loans, holding officer, trend Our of in loans, commentary million loan line million asset credit to PPP deposit to decrease interest-bearing over basis commercial hand repayment from also decrease total an The to a resulting reflects XX of point also basis $XX $XXX was of quarter. not a you, to deposit period decrease levels higher accrual deposit and remaining and prior $XXX paydowns decrease I'll And balances. deleveraging billion, decrease give decrease Over customers XX% business, in driven the the the in from general update million our a the the hotel Steve on $XXX credit Yose and million credit XX liquidity. basis an quality points XX some chief mortgage were segments. costs consumer decrease to and key the by Steve. now of criticized progress, warehouse

Steve Yose

Thank everyone. you, Pete, and good morning,

one was delivering improving indicated, Mark our quarter priority this As a quality. in asset of results big related to us number for

largest million Slide to reduced $XXX non-Ag classified million of XX, from year-to-date. down We XX% balance profile we Ag five balances $XXX $XXX now special to up it Ag segments fiscal concentrations loans loans XX% we which non-accrual make fiscal now to number down non-Ag and down reduced to our in are mentioned $XX helpful million small is X% down and at from which $XXX related by from year-to-date. $XXX loans, non-accrual loan loans XX% XX% to which of would by a segments. by be from million, now million reduced Also, $XX are fiscal a in and from Looking We non-accrual loans XX, reduced year-to-date. non-accrual five are show all to XX% highlights XX% which million year-to-date by The $XXX XX% and on the fiscal million, concentration in Slide our largest XX% OREO loans of relationships. we now the thought million,

a being loans. our and are workout team with these improve disciplined continued focus of classified non-accrual managed All to by

to pleased have progress quarter. work more very do. We But with this I'm our

on $XX X.XX% hotel the see taking or loans total year-to-date. year, net quarter $X.X of of Looking net $X.X fiscal annualized. impacted charge-offs at XX, or from the million this the charge-offs were we were the loans X.XX% exits Slide annualized deteriorating lines When of throughout million discounts excluding million total

prices updated loans, summer hotel information season, portfolio Moving corn through bushel in to which conditions the $XXX our a is year XX% from have southeast down down Livestock million, portfolio. producers. the Ag tracking to than Iowa in $XXX while our and locations. are futures Partway June prior the per bushel Nebraska both ahead XXX is indicating the and is and farm the this across ago. hotels $XX.XX with by corn billion managing of soybeans per to hundredweight is and line are million maintain USDA Class hotel bushel are The to averages, respectively, bushel, for and in XXX from Slide well-diversified well to level. with north we past-rated experiencing for $XX.XX total notched small accommodation South footprint it’s $X.XX $X.XX of milk in is you'll portfolio. Dakota margin across in our that all and $XXX national Hotel portfolio see our segments price as XX% of $X.XX dry good per and the we below on portfolio casino XX, and XX, conditions our footprint quarter of PPP million in both – tracking Grain the is excluding diversified and remain USDA and Slide a XXXX X the remaining more across higher we soybean $XX.XX and Crop and per for geographies. progress west. average opportunities diligent in in reported well increases per continue favorable mid-sized On our

and warning risk has and continue shown be portfolio and proactive the through risk timely with generally healthcare ratings. accurate identification our early to cycle COVID stability Additionally, we

asset quarter year with credit That commentary. back As exceeded laser-focused Western began from we continue has will made now I remain reflect improving the far progress to call the Mark. past and Great over when this last on will my Bank, frame expectations I the we’ve time and my up to wraps hand this over I quality. the in

Mark Borrecco

this At call open Steve. you, questions. the Thank let's now point, for operator, up

Operator

first The question ahead. Please instructions] with Jeff comes D.A. from [Operator go Rulis Davidson.

Jeff Rulis

Good Thanks. morning.

Mark Borrecco

Good morning, Jeff.

Jeff Rulis

to the Pete, that margin mentioned the sounds the you keep going will additional, ability like be it with of asset earning forward, big up. contraction expectation variable or balances

were the able in to that the You with run-off. do quarter loan

on keeping sustainability it. that balance asset maybe of earning level that and growing expectations and/or Just,

Pete Chapman

there, looking Jeff. Yes, good trends at pretty look,

If bit balances spot at spot average. look up liquids, you are versus over cash the just the balances the and have a for average quite a

into So that expect we’d the that's why quarter. drag

So, loan run-off you the that run-off pretty we'd PPP good and quarter this wildcard in coming of big expect that obviously up. the saw less is loan

Jeff Rulis

Okay. Well, linked-quarter. don't mentioned is see as loan somewhat question higher We related next that churn that is, my XX% get much. up you Mark, the to production to

So, Thanks. that the turns another are growth you the when that and you is are on? I that guess quarter when of that question question update tough might big just think inflection? be seeing And where

Mark Borrecco

Yes.

increase is that fact an so forward how would production were kind of our piece are I would growth that's year is, we expect to relates goal to and The – credits little great bit a into more to moderate think trending, for little understand start do And to continue. in move us our where as that overall and ago and we to that expect back as challenging I a harder improving thing. see a where start we a at XXXX. are seeing harder we we stop, to our contraction the kind and loan sheet or continue zero, that the to some more Jeff, we of much have a as look it balance is get to de-risk improve I

don't compensate will a about get continue see too increase, our our again troubled through in to can that that next of as encouraged in drive that production. we and or that outlook As we some that our soon. we how see as enough I increase, that look today we of specific, then production we far the balances pipelines that I portfolio quarter the working I to because asset or the am I want of feeling how quarter are obviously much see de-risking year. way But quality continue should rest am this of of loan don't to much at down we cover better and first growth know

Jeff Rulis

it. Appreciate Okay. Thank you.

Pete Chapman

Jeff. Thanks,

Operator

with The Stephens. next McEvoy question comes from ahead. Please go Terry

Terry McEvoy

everyone. morning, Good

Mark Borrecco

Good morning.

Terry McEvoy

kind position at first business Western, Maybe, to outside of Mark, think a small defense? consistent since not offense than you more, am earlier, start else more wondering longer-term just just picture. of you center, growth play And you've you, time more for Do can offense which it, of and long-term with of about kind but a what the for you this little bigger for done bit couple to question like been quarters, I talked maybe the feel Great can start more growth? be next call

Mark Borrecco

element quality. just I creating our to organization as grow significantly better more Yes. the the it to foundational about I business first feel worry being relates for a time really asset rather do offensive than for to what is faster. consider The to having piece small capacity

that the handled traditionally was I million XX,XXX credits, was we think it commercial whether XX So have thousand about small it or the treated way when same.

a we're of that with portfolio can be grow larger go that higher or now the resources part we portfolio to So free at loans. up to level a dealing and able significant

hiring platform investment opportunities those end-to-end - have about enhancements well. non-interest key part, resources about a across still I process really of our that what sources that's she part additional work we isn't more and of in we that there, And treasury treasury at with feel platform So, wealth very And wealth far lending which platform, and as capacity end-to-end the and I our to is with commercial point. reinvent look We've to will we Johnson the us. underutilized piece. just been into far for our so Amy we whether about that Robinson think elements when income management when look treasury drive offensive, other for I loan and management lastly, create an investment I putting like doing growth. that That's also lending it perform of retail and more the think in that hiring see commercial management, space. grow management our continues business, our and business, piece, organization. business small us our to of Rick all some technology is look at management then in as the the income

soon so many checking we've investing. consumer to mix, updates at feel there looking made of in we some like our enhancements have to product are I areas, product our the small So mix. Terry, business really with

not being growth just It's their Great turnaround more going going to those areas, of kind it's story. of to area help to revenue bringing are offensive. overall revenue. Western us the be the one all piece pie our And We own of that's each

Terry McEvoy

Mark. how up just Great. about bit playing thinking more overview, expenses, just follow expenses, of looks the like you quarter. manage a about talk little for Appreciate next higher going Maybe to on that it And kind given be are offense. then, simply discussions they a Pete. Mark's Maybe

Pete Chapman

we've the really into potentially the prudent reinvesting really in behind at slowed been We've of the through turnover grow. Certainly, and we that areas business want areas turnover terms capturing scenes, Look, good to Terry. been that of pandemic. that down in

over So, we'll the two. just continue Terry, or to course next of quarter do that, the

So, we feel pretty comfortable.

behind uptick really vendor and slight turnover, a expenses, to contracts the but levels term we're well. been said, we've lower also, at scenes, that as renegotiating perspective, behind longer capturing from work you reinvesting a couple a certainly at continuing in As on successful

feel we doing are is we what So, manageable.

Terry McEvoy

Great. Thanks, everyone.

Pete Chapman

you. Thank

Mark Borrecco

day. Have Thank you. Good a

Operator

Piper with Please Liesch Andrew go The next question Sandler. comes from ahead.

Andrew Liesch

guys. Hey

my got the in margin to follow-up covered balance related a already, kind most just questions but sheet. the of have of You

over quarters, get? like been few like last percentage of climbing large just maximum? securities like have is there a you assets on you However, book capacity do so, of the any How has sort to as would the much how that the And, it curious there? policy

Pete Chapman

policy on maximum, No the Andrew.

as on it sheet. we Certainly, We've only anything cost So we of running side the of you got FHLB. side high $XXX balance lots down outstanding a the are the have deposit on the bank. million, see, liability pay of the things, with is cost at don't think, up a can I

a securities and what think the than yields I probably next see to less XX It's over while portfolio quarter this work So, cash the money holding aren't put the exciting. at in you'll you'll bit see quarter, probably more we'll us points getting little Fed. better

So, I you'll that's see next the quarter. think what from a mix perspective, over

Andrew Liesch

Got it. Any you'd thoughts like purchase? on what to

Pete Chapman

more agencies, Andrew. yield seem are just at. best that the at the It for to moment duration, the we be Probably, looking

Andrew Liesch

Got it.

for questions. Thanks Alright. taking Okay. the

Pete Chapman

Thanks, Andrew.

Mark Borrecco

Andrew. Thanks,

Operator

comes from ahead. question next go Please with The JPMorgan. Janet Lee

Janet Lee

Sure. Good morning.

Mark Borrecco

Good Morning.

Pete Chapman

Janet. Hey,

Janet Lee

of as But this the sort peers more getting assuming I can to. time understand – as even from provide day My in any this with the know the I - But down may simple Hello. many so, to quarter stabilized? factors, assume you've it would of helpful. one be in color seen is you level asset your to remarks. we down when over improvement this the just just quality any CECL guided reserve combined coming touched reserve question, you've the there is be a possible improvement in that level bit things possible that it is not you for little and overall it economic that first level metrics driving back on

Pete Chapman

our Janet. is hope well above as peers MPOs. Obviously, our coverage we'd reserve is so, Look,

reserve to at there? else don't track got. that levels the anything current have coverage we've to of Steve, So, us hold we hope we'd MPOs as down, certainly add look,

Steve Yose

criticized asset But allowance – by the to Yes. how there. a show what move think at it allowance. and careful And we taking that we careful as Well, relates look looking at you'll and continue things encouraged factors our with we're loans. very I hospitality are are very the accommodation happened quality very in we are see to the we as also to very or all being non-accrual economic sure improvement those and make

Janet Lee

Got it.

now a fairly there just the point Sort and so, – say, that from like and perspective sub do okay, there color X.X%. start this turn back you'll this more line, you around little at start significant growth same quarter any get Is along a provide is loan X%, obviously improvement NPLs deleveraging you up of returning can Is think are what bit there? or let's capital? more good enough

Mark Borrecco

are, offensive we've Yes, and a help level revenue that more are focused I think say starting that initiatives mentioned we drive of and as the call where will growth, earlier on I are in we focused loan that more terms we we more reached are on be on that. to

to certain driving it And focused more the our set the growth parts so, be and on the organization, up revenue bankers with challenging the focused focused organization credits moving of really on and loan that to we've having that way forward. more or allows solely start

point I in like So feel of being more terms we've that reached defensive. offensive than

levels As what any additional? perspective. capital our truly will quality the word, the then will Pete, again we the capital to more of around a isn't we and see do be thoughtful right aggressive, that or from far capital quarter-after-quarter, more how see us but If you probably become reflective as actions, continued have we just action performance. additional continue that asset

Pete Chapman

Nothing, Mark. Janet. Thanks, [Indiscernible]

Janet Lee

Great.

I if follow-up, could? one Just

Mark Borrecco

Sure.

Janet Lee

– or XXXX in like are the be how growth already? business growth after Do XXXX. growth’s you C&I obviously, about in should loan little into you With primary maybe the growth second loan things September, about for as will we the center I loan what small the half you or a loan should in think guys, drivers more think have launching that optimistic bit maybe

Pete Chapman

Yes.

March. in rolled September So, We the launched be it center, by small business again will fully X. out it

a doing are We phased just approach.

think But look in going though. our our that improved C&I our share over-promise clarification us do want will I still forward. and a it of and than I'd we performance, at a estate we're relative as estate be of real the see C&I historically. real how I combination have think of would Look, key moving as greater of have you both grow. prior growth markets, to would a to don't of there. fair you been expect C&I When percentage regard footprint about percentage organization. become I just that So, to when some an has

Janet Lee

you. Thank Great.

Pete Chapman

you. Thank

Operator

[Operator DelMonte with comes instructions] ahead. question next The KBW. Please Damon from go

Damon DelMonte

well Hey. doing Good morning, everyone. today. Hope everybody is

is first – question great. my So,

out you areas of think XXXX to what look the you you the turn best this offer that talk on going start positive, but obviously quarter, it’s I other to seeing guys growth and when more areas As runoff to by expect opportunity, are you geographic the masked because there's loan are in to the portfolio. being about loan production

us just more markets what's can So, and insight opportunities? some driving the give a more those bit into little of attractive

Mark Borrecco

Sure. Yes Damon. Thanks,

about and So, think and move kind start when of east. west I I'll

our the within significant and our expect the markets opportunities to our market. more I significant from Colorado both of look Arizona, or portfolio. newer we would that impactful and and space, of I there higher we the grow down do the have bankers opportunities we when market in market, about think, markets. Fort to also area, think and bigger kind I Tucson and more where in are the established be break growth that to I then we can in especially Arizona Colorado, and be level Springs what there when our that and markets do have think aforementioned I solid Collins in or about expertise, When at So, the growth I Denver

side I Fargo, would that, area as north we've So mentioned the a key move of before tell opportunity. starting on you of we as is east,

and We are that would I investing expect in growth to there. see market

but still areas, been just has banker as in a there Dakota for I would parts opportunities to I there there Moines, exceptional. strong growth for Des growth. South of Dakota, team key mainstay several be well. our expect and South not be us Falls to Sioux would in expect is other

we growth some Moving strong as And our forward. moving hired head I and know bigger a success Kansas the very as City. market part put up our a We've then, Kansas in team has and Doug further more put in would that City south already future. far eastern expect down we up to of have become growth Iowa sizable Gummer

in still we'll Omaha, even as Lincoln, kind market have opportunities that have So, I a more to that. our that feel I and in Lincoln as in didn't markets, I and of Omaha I do like long-term mention am player and look we where have and through confident we

isn't me say what future, just it's Damon, we the have, So, hey, we growth. kind that of excites loan about

As about we within am look we very and that impact to where loan areas at pockets undeveloped moving I how the win our that about that and as have have that our we can well will in, and more markets we as growth still the markets, what established means footprint us forward. also encouraged revenue

Damon DelMonte

sales Were this Appreciate working time? a at off rundown. you just a are Or just great loan And type on That's bulk I Thanks. credits that. of then kind this one of said. quarter? was there process, of any kind the de-risking apologize if

Pete Chapman

we say, did look we over look have way. – fiscal loan you – looking helped as through an the would workout that us at of don't any evaluate option that or But that credits. and always loan, as – not different time, any in non-accrual and we at. that's this loan look our at generally, option going and as has to get way the help find to well On us I forward that they'll we year, the de-risk opportunistically a we sales. best problem continue we portfolio, today. working as we focus course we with But the further focused pursue we're staffed We feel point group a our is have sales lift portfolio, well challenged that's very as the not at and

see going I any sales forward. loan commercial in So you our don't will think portfolio

Damon DelMonte

Got it.

very That's Thank much. helpful. Okay. you

Mark Borrecco

Damon. Thanks,

Operator

Mark would for to concludes I turn This Borrecco any session. to over remarks. conference question-and-answer back closing the like the

Mark Borrecco

fantastic just progress. you of have follow-up operator. Thank day. reach that you, that to with Okay. improvement. am a our continue I and Please moving level continued I out to will Again, may see about we have excited all. close, any Thank that you know forward,

Operator

The today’s conference for Thank concluded. now is attending presentation. you

You disconnect. may now