SIOUX FALLS, S.D., June 20, 2019 – Great Western Bancorp, Inc. (NYSE: GWB) recently stated net income of $44.50M, or $0.78 per diluted share, for the second quarter of fiscal year 2019, contrast to net income of $45.80M, or $0.79 per diluted share, for the first quarter of fiscal year 2019 and $40.50M, or $0.69 per diluted share, for the second quarter of fiscal year 2018, a 13.0% increase.
Net Interest Income and Net Interest Margin:
Net interest income was $104.90M for the quarter, a decrease of $1.50M, or 1.4%. The decrease resulted from higher interest expense associated with the cost of deposits, partially offset by a higher yield on loans and investments.
Total loans outstanding were $9.77B as of March 31, 2019, a marginal increase from the prior quarter, and growth of $355.00M, or 3.8%, for fiscal year-to-date. During the quarter the commercial real estate (“CRE”) category of the portfolio grew by $139.50M, or 2.8%, mainly in the non-owner-occupied segment, partially offset by a reduction of $112.90M, or 5.1%, in the agriculture category of the portfolio, which reflected the seasonal draws that were repaid in the second quarter of 2019 and one relationship moving into other repossessed property.
Total deposits grew to $10.47B as of March 31, 2019, a boost of $355.10M, or 3.5%, for the quarter and $734.90M, or 7.6%, for fiscal year-to-date. During the quarter, deposit inflows were driven by seasonal inflows. Interest-bearing deposits were $8.64B, a 5.0% increase for the quarter, and noninterest-bearing deposits were $1.82B, a 2.9% decrease for the quarter. FHLB and other borrowings reduced by $135.00M, or 32.9%, for the quarter.
Provision for Loan and Lease Losses and Asset Quality:
Provision for loan and lease losses was $7.70M for the quarter, a boost of $2.50M. Net charge-offs for the quarter were $5.90M, or 0.25% of average total loans on an annualized basis, with the majority of net charge-offs concentrated in the agriculture segment of the loan portfolio. The ratio of allowance for loan and lease losses (“ALLL”) to total loans increased to 0.70% as of March 31, 2019 from 0.68% as of the prior quarter.
Included within total loans are about $835.80M of loans for which management has elected the fair value option. These loans are excluded from the ALLL process, but management has estimated that about $6.40M of the fair value adjustment for these loans relates to credit risk, or 0.07% of total loans. Finally, total purchase discount remaining on all attained loans equates to 0.16% of total loans.
Nonaccrual loans were $121.60M as of March 31, 2019, representing a decrease of $17.30M for the quarter. Loans graded “Watch” reduced $20.50M, or 6.4%, for the quarter, while loans graded “Substandard” increased $6.40M, or 2.5%. Total other repossessed property balances were $32.50M as of March 31, 2019, a boost of $10.20M, or 46.0%, because of one relationship moving into other repossessed property during the quarter. In March and early April 2019 there were isolated areas of flooding stated within parts of the Midwest in which certain of our agricultural borrowers conduct their operations. We have reviewed loan exposures in these areas as part of our normal quarterly review process and at this time have not identified a material decline in asset quality or losses associated with these loans. We will continue to monitor our loans in these floods affected areas.
Noninterest income was $18.20M, a boost of $1.50M, or 9.0%, for the quarter. Included within noninterest income is the net change in fair value of loans for which the Company has elected the fair value option and the net realized and unrealized gain (loss) of the related derivatives which generated a $2.10M favorable change over the prior quarter. This was partially offset by a $1.50M decrease in service charges and other fees. The decrease in service charges and other fees was predominately because of a decrease in net overdraft and non-sufficient funds fee income.
Total noninterest expense was $56.60M, a decrease of $0.50M, or 0.9%, for the quarter. The majority of the decrease was driven by a $2.70M decrease in net loss on repossessed property and other related expenses, partially offset by a boost of $0.70M in data processing and communication expense and a boost of $0.70M in professional fees.
Provision for Income Taxes:
The provision for income taxes for the quarter ended March 31, 2019 was $12.90M, reflecting an effective tax rate of 22.5% contrast to an effective tax rate of 22.8%.
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