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Edited Transcript of GWB earnings conference call or presentation 24-Jan-19 1:30pm GMT

Q1 2019 Great Western Bancorp Inc Earnings Call

Sioux Falls Feb 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Great Western Bancorp Inc earnings conference call or presentation Thursday, January 24, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ann Nachtigal

Great Western Bancorp, Inc. - Director of Corporate Communications

* Douglas R. Bass

Great Western Bancorp, Inc. - President & COO

* Kenneth James Karels

Great Western Bancorp, Inc. - Chairman & CEO

* Michael Gough

Great Western Bank - Executive VP & Chief Credit Officer

* Peter Chapman

Great Western Bancorp, Inc. - Executive VP, CFO & Principal Accounting Officer

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Conference Call Participants

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* Damon Paul DelMonte

Keefe, Bruyette, & Woods, Inc., Research Division - SVP and Director

* David Patrick Rochester

Deutsche Bank AG, Research Division - Equity Research Analyst

* Ebrahim Huseini Poonawala

BofA Merrill Lynch, Research Division - Director

* Jeffrey Allen Rulis

D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst

* Jon Glenn Arfstrom

RBC Capital Markets, LLC, Research Division - Analyst

* Nathan James Race

Piper Jaffray Companies, Research Division - VP & Senior Research Analyst

* Timothy O'Brien

Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research

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Presentation

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Operator [1]

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Good morning, and welcome to the Great Western Bancorp First Quarter Fiscal Year 2019 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Ann Nachtigal. Please go ahead.

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Ann Nachtigal, Great Western Bancorp, Inc. - Director of Corporate Communications [2]

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Thank you, Kerry, and good morning, everyone. Joining us this morning on Great Western Bancorp's First Quarter Fiscal Year 2019 Conference Call 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.

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

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

With that said, let me turn it over now to Great Western Bancorp's Chairman and Chief Executive Officer, Ken Karels.

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Kenneth James Karels, Great Western Bancorp, Inc. - Chairman & CEO [3]

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Okay. Good morning, and thank you for joining the call. We are very pleased with the results for the first quarter of our fiscal 2019. Let me highlight a few items before we go into more detail.

Net income was $45.8 million or $0.79 per share, up 8% over the December 2018 quarter. Loan growth was strong with loans increasing 3.7% in the quarter, with growth well balanced amongst all the regions. Expense control remained strong. Asset quality metrics improved. And we were active in the capital management during the quarter, repurchasing 2.1 million shares for approximately $75 million. This demonstrates our desire to actively manage capital in the most effective way for our shareholders as M&A pricing, in our view, remains elevated in the current environment.

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

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Peter Chapman, Great Western Bancorp, Inc. - Executive VP, CFO & Principal Accounting Officer [4]

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Thanks, Ken, and good morning, everybody. Looking to revenue, interest income was $132 million for the quarter, which reflected an increase of $7 million or 5.5%. Our net interest margin and our adjusted net interest margin were both 3.81% for the quarter, with the adjusted net interest margin up 4 basis points quarter-over-quarter.

Of the increase in margin, 5 basis points was attributable to an increased yield in the investment portfolio, 8 basis points attributable to loan yields and 3 basis points due to nonaccrual interest write-offs in the prior quarter. These were offset by a 12 basis point reduction due to the increased cost of deposits, which is in line with the prior quarters.

The margin for the quarter is in line guidance with the prior quarter and has not been impacted by material nonrecurring items. While a challenge, we would look to NIM to remain relatively stable during the next quarter.

Reinvestment rates on the securities portfolio remained positive compared to securities maturing and loan pricing is improving. There will also be some benefit from the December Fed rate rise. And also while deposit costs continue to rise, increases are in line with prior quarters rather than accelerating sharply.

Noninterest income is low for the quarter, partly due to the adoption of the revenue recognition accounting standard, which has moved $1.4 million in costs relating to credit cards and wealth management items as a negative revenue item. Noninterest income for the December quarter declined $1.3 million as a result of seasonally higher NSF income in the prior quarter, a $1.1 million increase in credit risk adjustment on loans held at fair value and low mortgage income.

Also -- and also a $0.5 million loss on securities sales to reinvest into higher yielding securities. These items were partly offset by a $1.3 million higher swap sale income compared to the September quarter.

Noninterest expenses were $57.1 million for the quarter, a decline of $1.2 million. Within this amount was the reclassification of $1.4 million of expenses to noninterest income previously referenced. Outside of this item, the movement was driven by a $1.8 million decline in professional fees as a result of nonrecurring expense of $0.6 million in the prior quarter, a $0.5 million positive item in the current quarter in addition to lower consulting-related costs.

This was offset by a $1.1 million increase in salaries and employee benefits, mainly as a result of fiscal year-end related items and immaterial increases of other line items.

OREO expense increased modestly to $3.1 million, however, was above the $700,000 to 800,000 range forecast for operating expense cost during the December earnings call. The increase was due to write-downs on properties held through proactive management by our credit team. Outside of these write-downs, we would expect ongoing OREO hold costs to remain in the $700,000 to $800,000 range.

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

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Douglas R. Bass, Great Western Bancorp, Inc. - President & COO [5]

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Thanks, Pete, and good morning, everyone. During the December '18 quarter, loan growth was $352 million or 3.7% for the quarter, which was a very strong start to our fiscal year. The strong growth during the quarter was helped by several closings initially planned for the prior September '18 quarter where growth was softer. Additionally, we had 5 larger payoffs that in aggregate totaled $68 million. These were all in the C&I sector. This was due to 4 companies that were sold and a fifth that was refinanced.

Growth was well balanced and evenly dispersed within our 9-state footprint. Growth for the quarter was concentrated in the commercial real estate segment across a range of industries and geographies. Construction and development balances declined by $58 million during the period as projects completed. In addition, owner-occupied real estate and commercial nonreal estate balances increased $39 million during the quarter, demonstrating good growth in segments where competition is very strong.

Agricultural balances increased $52 million during the quarter, with approximately $30 million of this in seasonal tax planning, $15 million of which was repaid in January '19. We would expect the agricultural portfolio to remain relatively flat for the remainder of the fiscal year as we work with some of our stress customers offset by modest new originations.

Good progress continues to be made by the new loan production offices, with our North Scottsdale office opening in January, which is staffed by 4 seasoned lenders. Wichita, Kansas and Yuma, Arizona opened in late fiscal Q1. All 3 offices have material pipeline opportunities.

As we look further into FY '19, we are projecting loan growth to remain in the mid-single digit range we have previously communicated. We feel that while we have had a very strong start to the fiscal year, we will look to stay disciplined on pricing and not compromise on underwriting standards. Additionally, the March quarter is typically a softer quarter for loan growth with agricultural loan paydowns and construction draws slower until construction conditions improve in the spring across the footprint.

Deposit growth during the quarter was $380 million or 4%. A large part of the growth was from seasonal consumer balances with these increasing $145 million and also $200 million of public fund balances, all with in-footprint relationships providing for this growth. We have seen seasonal -- we have seen deposit competition during the quarter remain strong, but consistent with prior quarters. We have lowered CD special rates through the quarter and we'll continue to be proactive to manage deposit cost commensurate with loan yields to stay focused on net spread, while still attracting sufficient deposits to fund asset growth.

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

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Michael Gough, Great Western Bank - Executive VP & Chief Credit Officer [6]

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Thank you, Doug. Overall, we are satisfied with asset quality during the quarter, with asset quality metrics improving compared to the September 2018 quarter. Net charge-offs for the quarter were $3.6 million or 15 basis points of average loans on an annualized basis, which is lower than each of our previous 4 quarters during the 2018 fiscal year.

Our allowance for loan and lease losses as a percentage of total loans was 68 basis points, which is down 1 basis point. And our comprehensive credit coverage, which includes credit-related fair value adjustments on our long-term portfolio and purchase accounting marks remain sound at 92 basis points of total loans. Compared to the September 2018 quarter, we saw a $22 million decline in Watch credits to $322 million, mainly due to improvement in the ag portfolio.

Nonaccrual loans declined by $4 million and Substandard credits and OREO balances were in line with the prior quarter at $206 million and $18 million, respectively. Note that OREO balances are expected to increase later this quarter as we take back real estate as part of settlements currently being negotiated with a couple of our larger ag problem credits.

We have also continued our close oversight of the ag portfolio, which has performed well during the quarter. The dairy portfolio continues to exhibit some stress as milk prices have remained low. But within this portfolio, we do not see significant losses. Forecast for milk prices indicates stable to modest increases, while production costs continue to decline.

Within the grain portfolio, overall, more borrowers have outperformed and underperformed our expectations based upon crop revenues and financial statements received and reviewed so far. We will provide more in-depth insight into this part of the portfolio in our March 2019 earnings call once we have more complete information from our borrowers.

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

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Kenneth James Karels, Great Western Bancorp, Inc. - Chairman & CEO [7]

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Okay. Thank you, Michael. We are very pleased with the strong start to our 2019 fiscal year. We believe our strategy is sound and will allow us to continue to deliver strong returns for our shareholders. We do expect loan growth to be slower during the remainder of 2019, but we still see good opportunities across our footprint as the economies continue to perform strongly. We will continue to be selective on loans and use this to help manage our net interest margin and credit quality. We will also manage capital to ensure that we remain strongly capitalized, while we return capital to our shareholders through stock buybacks.

Thank you for your continued interest in Great Western Bank. We'll now open up this call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question will come from Dave Rochester of Deutsche Bank.

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David Patrick Rochester, Deutsche Bank AG, Research Division - Equity Research Analyst [2]

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It was great to see the solid credit trends this quarter. Just a question on the annual review process of the ag portfolio. I know you mentioned it in your remarks. How far along are you guys in that? I know you've typically reviewed the higher risk stuff earlier in the December quarter, historically. I was just wondering how far along you are on that?

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Michael Gough, Great Western Bank - Executive VP & Chief Credit Officer [3]

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Over 50% overall across the footprint, with most of the Watch and worse credits already having at least a preliminary looking, even though we may not have final '18 numbers yet.

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David Patrick Rochester, Deutsche Bank AG, Research Division - Equity Research Analyst [4]

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So based on what you're seeing, you feel pretty good about how those trends are going to progress as you go through the rest of the reviews?

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Michael Gough, Great Western Bank - Executive VP & Chief Credit Officer [5]

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Yes, sir.

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David Patrick Rochester, Deutsche Bank AG, Research Division - Equity Research Analyst [6]

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Fantastic. And did I hear you correctly that the OREO expense should decline to that $700,000 to $800,000 range, even though you're expecting that to increase in terms of the actual OREO this quarter?

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Peter Chapman, Great Western Bancorp, Inc. - Executive VP, CFO & Principal Accounting Officer [7]

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Yes. That will be sort of the run rate hold cost, Dave. We had an additional write-down this quarter just as Michael on the credit same look through the portfolio. We just decided to make sure that we held things where they should be. So yes, a little high this quarter, but we'll just wait and see for next quarter.

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David Patrick Rochester, Deutsche Bank AG, Research Division - Equity Research Analyst [8]

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And the expectation is that OREO -- the overall OREO balance beyond this quarter would decline through the rest of this year as you work that stuff down?

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Peter Chapman, Great Western Bancorp, Inc. - Executive VP, CFO & Principal Accounting Officer [9]

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No, no. Michael mentioned the balance itself will increase, Dave, we expect.

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Michael Gough, Great Western Bank - Executive VP & Chief Credit Officer [10]

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Correct. I believe, David, in my comments, we mentioned a couple larger ag workout situations. We're expecting -- negotiating to get some OREO back. We wouldn't be surprised if we saw that increase in the $15 million to $20 million range.

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David Patrick Rochester, Deutsche Bank AG, Research Division - Equity Research Analyst [11]

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Okay. Got you. Great. And then on capital, you guys are obviously very active in the buyback this quarter. Is the thought that you would continue to remain as active? Or how would you characterize your thoughts on that front?

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Kenneth James Karels, Great Western Bancorp, Inc. - Chairman & CEO [12]

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Yes. Probably won't be as active. I mean, we couldn't afford to do $75 million a quarter on it too, but we will continue to be opportunist as we see opportunity to buy stock back at lower prices for us than we think it should be.

Of course, we'll temper that in case there is an acquisition that comes up that would still be a choice of ours. But as I mentioned in the call, we still think prices are elevated for what makes sense, but definitely through -- I wouldn't look at quarter-to-quarter, but through the years you'll see us be chunky in the stock buybacks we do.

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Operator [13]

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The next question will come from Jeff Rulis of D.A. Davidson.

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Jeffrey Allen Rulis, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [14]

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You mentioned the couple -- I guess, the OREO expense dropping down to $700,000 to $800,000, also the kind of year-end comp a little elevated. If we couple the 2 of those items that would lead to another drop in the quarterly expense rate. Is that consistent with what you're thinking if we drop another $1 million on the comp side?

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Peter Chapman, Great Western Bancorp, Inc. - Executive VP, CFO & Principal Accounting Officer [15]

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Look, Dave, I think, actually you'll see expenses sort of stabilize and actually tick up a little bit. So the next quarter, I'd expect more in the $58 million range. A couple things playing into that. All of our year-end merit increases, even though we're on a fiscal September year-end, they kick in the first of the year, so you see an increase in those. So even the year-end comp goes away, you see that merit increase go up.

And then for us as well, we called out consulting costs being lower in our first fiscal quarter as people are sort of working out budgets and priorities for the year. And also seasonally with the holidays, you had a little less spend in the December quarter, so I'd expect that to tick up in the March quarter. So I'd expect somewhere around the $58 million range, but certainly, nothing too surprising outside of that.

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Jeffrey Allen Rulis, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [16]

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So not to get too granular, but the merit increases would outstrip the annual comp increase, the year-end stuff? Because if you've got at least a $2 million drop in the OREO costs and you've got some offsetting consulting increase, that's still -- expenses are increasing from here, I guess. Where else is that coming from?

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Peter Chapman, Great Western Bancorp, Inc. - Executive VP, CFO & Principal Accounting Officer [17]

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Yes. Look, I think the year-end -- the merit and the year-end comp stuff is about a wash. If you look at our salaries and benefits, it's $130 million at 3% merit. So that's sort of had a push there, Jeff. And then on the consulting side of things, I just -- based on some projects we've got going, I just expect a bit more seasonal stuff to come through, a bit more front-ended in the March quarter compared to the rest of the year. That's all.

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Jeffrey Allen Rulis, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [18]

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Okay, great. And then, Doug, did you mention the payoff activity linked quarter? I think you alluded to it, but what was the payoff amounts this quarter versus last?

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Douglas R. Bass, Great Western Bancorp, Inc. - President & COO [19]

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In the quarter we just completed, we had $68 million, and I just itemized the large C&I payoffs. We would have had payoffs in excess of that in the nonowner-occupied sector, which are more traditional from quarter-to-quarter, but just in C&I and owner-occupied real estate was $68 million.

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Jeffrey Allen Rulis, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [20]

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Okay. But overall, just, I guess, if you don't have the number, just gut feel, payoffs in total were down linked quarter?

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Douglas R. Bass, Great Western Bancorp, Inc. - President & COO [21]

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I would say, actually, they were probably up slightly because we would have had in the $30 million plus range of real estate projects that paid off as planned. So it would have been in the $100 million range plus, which would have been probably slightly higher than prior quarters.

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Operator [22]

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The next question will come from Jon Arfstrom of RBC Capital Markets.

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Jon Glenn Arfstrom, RBC Capital Markets, LLC, Research Division - Analyst [23]

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Just on that topic maybe, Doug, just on growth. Were you guys surprised at all by the strength of the growth this quarter? I think it was stronger than a lot of us expected. And I'm just thinking about that. And then I'm -- also the question on the magnitude of how soft you expect the March quarter to be.

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Douglas R. Bass, Great Western Bancorp, Inc. - President & COO [24]

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We had a couple closings that carried over into October from prior quarter. And I think we had a -- as we had a softer quarter for the last quarter of prior fiscal year, that was part of it. We had some very good wins on several fronts across really all geographic areas that produced some very good results. I'm very proud of what we had on closing activity for the quarter. That said, we did have some elevated payoffs as we just went through and still rebounded with a pretty good number.

And I think as we do head into the current quarter we're in now, we would traditionally have slower construction activity. I think I mentioned $58 million of construction loans that were finished, completed into a perm. So we would have some slower construction draws in this quarter just based on seasonality. And a lot of the ag sector doesn't really start ramping up until April, May.

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Kenneth James Karels, Great Western Bancorp, Inc. - Chairman & CEO [25]

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Jon, Ken. I think we're seeing good activity. But as Doug mentioned too, we also are trying to push prices up to maintain our margin and obviously looking at credit quality too, so we will temper some growth or maybe opportunity to grow to make sure we get and maintain our margin too.

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Jon Glenn Arfstrom, RBC Capital Markets, LLC, Research Division - Analyst [26]

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Okay. So really it's a conscious balancing act on your part is what you're saying more than anything?

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Kenneth James Karels, Great Western Bancorp, Inc. - Chairman & CEO [27]

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Absolutely.

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Jon Glenn Arfstrom, RBC Capital Markets, LLC, Research Division - Analyst [28]

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Okay. The other question I had was for Michael, just on the OREO and NPL expectations. You talked about the OREO balances going up, but do you expect kind of a commensurate decline in NPLs? I guess, it's encouraging to hear that you can start to work down some of the elevated NPL balances and move them to OREO. But I just want to make sure I'm thinking about that the right way.

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Michael Gough, Great Western Bank - Executive VP & Chief Credit Officer [29]

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I think you are thinking about it the right way. The situations we're referring to where we're negotiating taking the property back would be a movement from nonaccruing loans into OREO.

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Jon Glenn Arfstrom, RBC Capital Markets, LLC, Research Division - Analyst [30]

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Okay. And is this -- is it generally land or is it operating businesses? Or what would the characteristics be?

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Michael Gough, Great Western Bank - Executive VP & Chief Credit Officer [31]

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I think the ones that we're negotiating on right now would be -- I'd say, it's mostly land.

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Operator [32]

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The next question will come from Nathan Race of Piper Jaffray.

Our next question then will come from Damon DelMonte of KBW.

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Damon Paul DelMonte, Keefe, Bruyette, & Woods, Inc., Research Division - SVP and Director [33]

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My first question is just dealing with the margin. Could you just elaborate a little bit more on your expectations in the coming quarters? I thought you said you hope to keep it relatively stable from this level?

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Peter Chapman, Great Western Bancorp, Inc. - Executive VP, CFO & Principal Accounting Officer [34]

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Yes. Look, we hope to, Damon. As we said last quarter, we hoped it would be around that 380 range. It's come in a little ahead of that. As Doug alluded to on loan pricing, we've seen that increase a little. We put a lot of money to work this quarter in the securities portfolio. Deposit costs continue to rise, but we're trying to manage that as well as we can. So we'll do all we can to manage it and try to stay flat. It will continue to be a challenge, but certainly that's what we're aiming to do.

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Damon Paul DelMonte, Keefe, Bruyette, & Woods, Inc., Research Division - SVP and Director [35]

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And could you give a little color on what led to the higher yield in securities on the quarter?

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Peter Chapman, Great Western Bancorp, Inc. - Executive VP, CFO & Principal Accounting Officer [36]

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Yes. We reinvested quite a lot. There was $500,000 we had as a loss in there, Damon. We sold about $130 million of securities that were yielding about 140 and reinvested those in the 3 range. So that certainly helped a lot. And also as well, just general roll-off, we're reinvesting at a much higher rate. So I'd expect that to step up again next quarter, but probably not as pronounced as this quarter.

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Damon Paul DelMonte, Keefe, Bruyette, & Woods, Inc., Research Division - SVP and Director [37]

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Got you, okay. And then with regards to -- thanks for the commentary on the outlook on credit, but with regards to like provision and maybe some of those nonperforming loans moving into OREO, would you expect there to be any additional bills in the reserve to account for that? Or -- I guess, also how do you look at the provision expense going forward?

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Peter Chapman, Great Western Bancorp, Inc. - Executive VP, CFO & Principal Accounting Officer [38]

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Look, pretty consistent, I think, with what we're seeing, Damon. Coverage was down a point -- plus or minus a point is a little bit of rounding, but certainly sort of around current levels of the same. Michael?

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Michael Gough, Great Western Bank - Executive VP & Chief Credit Officer [39]

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I would absolutely agree with that. The properties we are looking at taking back I think we've already got the appropriate provision raised.

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Operator [40]

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The next question will come from Tim O'Brien with Sandler O'Neill and Partners.

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Timothy O'Brien, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [41]

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Just following on the expected OREO take back, so -- and the allocated reserves there. So you expect -- or it's likely net charge-offs will come out of that to some degree. I'm not going to pin you down because you're probably in negotiations -- final negotiations. But net charge-offs expected to be a little bit elevated due to the OREO moves in the calendar year first quarter?

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Kenneth James Karels, Great Western Bancorp, Inc. - Chairman & CEO [42]

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Yes, not really. I think it will be consistent with previous quarters, so we won't expect a lot of charge-offs. Some of these -- well, actually, most of the ones we were looking at, we've already charged off.

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Michael Gough, Great Western Bank - Executive VP & Chief Credit Officer [43]

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We have taken some charge-offs already. Exactly.

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Timothy O'Brien, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [44]

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So they're marked pretty well at this point. Okay, great. And then you guys talked a little bit about kind of full fiscal year expectations on the loan and deposit growth front. As far as first quarter seasonality on the deposit side, do you expect -- what are your -- what's your first quarter outlook for deposit growth there or withdrawals due to seasonal factors?

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Douglas R. Bass, Great Western Bancorp, Inc. - President & COO [45]

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Tim, I think, on the full year, I think we're looking at, as we mentioned earlier, sort of that mid-single digit range on the loan side, and it will be very similar to that on the deposit side.

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Peter Chapman, Great Western Bancorp, Inc. - Executive VP, CFO & Principal Accounting Officer [46]

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Yes. Q1, we typically see a build in consumer deposits, so we see a build in consumer up till tax time and spring and summer savings. So I'd expect an increase in the consumer. And then on the business side, we'll just have to monitor that and that can be a bit more lumpy, but I'd expect some deposit growth in this quarter as well.

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Timothy O'Brien, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [47]

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Great. And then the last question. You guys are obviously monitoring the government shutdown, I would imagine. Any impact on USDA programs that would affect your borrowers that you -- that could occur, I don't know, if this thing extends into -- through the end of the first quarter?

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Michael Gough, Great Western Bank - Executive VP & Chief Credit Officer [48]

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Short answer is we're already starting to see some effects, mainly FSA offices not being open to endorse joint checks and taking applications for new guaranteed or direct loans. Some -- we've seen some FSA offices start to open maybe 1 or 2 days a week to keep the flow of funds moving. But as with prior shutdowns, no matter when the shutdown ends, we know that there's going to be a period where it's going to take some time for those offices to catch up on applications.

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Kenneth James Karels, Great Western Bancorp, Inc. - Chairman & CEO [49]

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Yes. It's a relatively small piece of our business, so no material effect on our business. Obviously, discomfort for some of our customers, but small effect on our total business.

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Timothy O'Brien, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [50]

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Could crop insurance programs be affected?

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Michael Gough, Great Western Bank - Executive VP & Chief Credit Officer [51]

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It would have to go on a long, long time, I think, to be affected. I'm not expecting that.

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Kenneth James Karels, Great Western Bancorp, Inc. - Chairman & CEO [52]

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Yes. They're still being written. I mean, obviously, insurance being written, signed up for, none of that will change. Most of that is out of the government's hands and private insurers are handling it. So that will continue.

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Operator [53]

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The next question will come from Ebrahim Poonawala of Bank of America Merrill Lynch.

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Ebrahim Huseini Poonawala, BofA Merrill Lynch, Research Division - Director [54]

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Just wanted to follow up on margins. I think just beyond like looking into middle or back half of the year, and when we -- when I look at like the deposit mix from a time deposit standpoint, we had about close to 20% today versus 15% a year ago.

Do you anticipate that the mix will continue to sort of migrate towards greater time deposits even without Fed rate hikes? And as a result, as I think Pete mentioned, it's going to be challenging to keep a flat margin. We should assume at least some maybe margin drifting lower in the back half of the year.

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Kenneth James Karels, Great Western Bancorp, Inc. - Chairman & CEO [55]

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Yes. Probably not. I think we'll work hard to keep that margin up there, but I think you are right. We will, as other banks will see, continue to shift now into CDs as customers are starting to see higher rates and push for that. I think we'll see that transition, but we are managing that well, getting higher loan rates and trying to maintain net margin. And I think proved this last quarter here, and we think we can continue doing that throughout the year.

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Ebrahim Huseini Poonawala, BofA Merrill Lynch, Research Division - Director [56]

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And are we running any active promotions on CDs in terms of 6- to 12-month CDs to bring in funds? Or is deposit growth coming more hand in hand with commercial loan growth, et cetera?

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Douglas R. Bass, Great Western Bancorp, Inc. - President & COO [57]

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There are CD pricing out there but really it is just in a retention mode based on the current pricing. Most of the promotional activity would be in the money market or business side.

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Peter Chapman, Great Western Bancorp, Inc. - Executive VP, CFO & Principal Accounting Officer [58]

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We actually dropped promotional rates during the quarter on CDs, Ebrahim, yes.

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Ebrahim Huseini Poonawala, BofA Merrill Lynch, Research Division - Director [59]

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Got it. That's helpful. And just separately, in terms of new markets, LPOs, any plans -- I'm sorry if I missed it if you talked about it earlier. In terms of any new markets where you'd be entering or hiring bankers over the next few quarters?

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Douglas R. Bass, Great Western Bancorp, Inc. - President & COO [60]

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Nothing probably planned in the near term. We opened 4 offices late last year, and we're in an absorption period on those. And we're seeing some pretty good opportunities coming. We've got a couple bankers that have been hired already that would potentially lead to new offices 9 to 12 months down the road, but nothing probably in the upcoming quarter.

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Ebrahim Huseini Poonawala, BofA Merrill Lynch, Research Division - Director [61]

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Got it. And just one last question on capital. So obviously, you were aggressive in buybacks and I heard what you said, Ken, earlier about the outlook. Anything from an M&A standpoint, do you see -- prices have moved around a lot, but do you see any potential for smaller banks becoming more open to deals over the coming months, quarters? Like, do you think the likelihood of dealmaking increases, given -- if the environment gets tougher?

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Kenneth James Karels, Great Western Bancorp, Inc. - Chairman & CEO [62]

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Yes. I think it will. It's been pretty robust. I mean, just prices have been higher than what we wanted to pay, so we've been absent in the M&A activity. But there's definitely owners looking to sell and continue. And we're having a conversation with a number of them yet, but it just has to be at the right price to make sense for us to do it.

So generally, yes. I mean, that's where, again, we will keep some powder dry in case that happens. But with what we're looking at, stock buyback, obviously, especially this last quarter, it was a better use of our capital. But we will -- as we always have, we will continue to look.

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Operator [63]

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The next question will come from Nathan Race of Piper Jaffray.

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Nathan James Race, Piper Jaffray Companies, Research Division - VP & Senior Research Analyst [64]

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I apologize for earlier. I was wondering if you could just go back to some of your comments around how you expect deposit costs to behave over the course of the next few quarters. Obviously, I'd imagine deposit costs will step up similar to what we've seen in the last few quarters in terms of 12 to 13 basis points. I was just curious how you expect deposit costs to trend if The Fed is on hold for the next few quarters.

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Peter Chapman, Great Western Bancorp, Inc. - Executive VP, CFO & Principal Accounting Officer [65]

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Yes. It's a good question. Internally, we are preparing for deposit costs to continue to increase, Nate. So that 12, 13 point range is pretty consistent with what we've seen in prior quarters. So internally, we are preparing for that.

Certainly, if the Fed pauses, we'd hope that maybe that decelerates a little. But in the Midwest, in particular, we're still seeing pretty strong competition for deposits, maybe a little less so in Arizona and Colorado, but we'll just have to monitor what the competition does, Nate, and continue to sort of keep pace with loan growth.

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Nathan James Race, Piper Jaffray Companies, Research Division - VP & Senior Research Analyst [66]

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Got it. That's helpful. Shifting gears a little bit and thinking about the impact of CECL. Just curious if you have any thoughts on just how that could impact your reserve levels once that's implemented. I'm just curious if your earlier fiscal year start would impact the implementation of CECL relative to what the accounting board intended.

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Peter Chapman, Great Western Bancorp, Inc. - Executive VP, CFO & Principal Accounting Officer [67]

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Yes. Actually, it's the other way around, Nate. We -- yes. No. That's a really good question, actually. And we'll be -- and making sure we keep everyone aware of this. We will actually be 9 months later than everybody else. So while everyone else is on the 1 January adoption period, we'll be actually on the 1 October adoption, so we'll be a little later than everybody else.

Look, project up and running, we've got a vendor selected. We're going through and cleansing our data, but probably haven't got strong enough view on where we're sitting at the moment to give any guidance yet, Nate. But we'll certainly keep you guys abreast of anything that comes up.

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Operator [68]

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The next question will come from Tim O'Brien of Sandler O'Neill and Partners.

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Timothy O'Brien, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [69]

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Sorry, just a quick follow-up. You mentioned Yuma, Scottsdale, Wichita branch openings. What's the fourth branch opening? What market was that in?

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Douglas R. Bass, Great Western Bancorp, Inc. - President & COO [70]

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The fourth opening that we had was Cedar Falls, Iowa that was probably in mid calendar '18.

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Timothy O'Brien, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [71]

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Mid -- okay.

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Peter Chapman, Great Western Bancorp, Inc. - Executive VP, CFO & Principal Accounting Officer [72]

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And North Scottsdale opened during the quarter as well.

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Douglas R. Bass, Great Western Bancorp, Inc. - President & COO [73]

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North Scottsdale just opened here in January. Yuma and Wichita opened late calendar '19 -- calendar '18, excuse me.

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Operator [74]

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The next question will come from Jeff Rulis of D.A. Davidson.

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Jeffrey Allen Rulis, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [75]

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Just a follow-up on the tax rate, Pete. Is this indicative of what you think for the full year, which is on fiscal Q1?

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Peter Chapman, Great Western Bancorp, Inc. - Executive VP, CFO & Principal Accounting Officer [76]

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Yes. It's a pretty good rate. It might drift 0.1 point lower. We are just working on a few things there. But for the moment, yes, I think it's a pretty good rate.

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Operator [77]

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And this concludes our question-and-answer session. This also concludes today's conference call. We want to thank everybody for joining today. We hope that you have a good afternoon. You may now disconnect.