Great Western Bancorp, Inc. Announces Earnings for Second Quarter Fiscal Year 2021

Highlights for the Second Quarter of Fiscal Year 2021 (all quarterly comparisons in this document refer to the first quarter of fiscal year 2021, except as noted)

• Net income of $51.3 million, or $0.93 per diluted share, up from $41.3 million, or $0.75 per diluted share
• Net interest income¹ of $104.4 million, down from $109.5 million, with net interest margin¹ of 3.51%, down from 3.63%
• Noninterest income of $17.2 million, up from $14.1 million
• Noninterest expense of $59.1 million, up from $57.4 million
• Total loans of $9.01 billion, down $506.5 million, including a reduction of $132.7 million in Paycheck Protection Program ("PPP") loans
• Average deposits of $11.27 billion, up $138.9 million
• Allowance for credit losses ("ACL") of $296.0 million, down from $308.8 million, and a ratio of ACL to total loans of 3.28%, up from 3.24%
• Net charge-offs of $7.8 million, or 0.34% of average total loans (annualized), down from $30.4 million and 1.22%, respectively
• Total capital ratio of 15.1%, up from 14.3%; tier 1 capital of 13.5%, up from 12.7%; common equity tier 1 capital of 12.8%, up from 12.0%
• Return on average common equity of 19.8%, up from 15.2%
• The Company's Board of Directors declared a quarterly dividend of $0.01 per share

Great Western Bancorp, Inc. (NYSE:GWB) today reported net income of $51.3 million, or $0.93 per diluted share, for the second quarter of fiscal year 2021, compared to net income of $41.3 million, or $0.75 per diluted share, for the first quarter of fiscal year 2021.

"I am proud of our continued improvement this quarter and the laser focus and dedication of the Great Western team," said Mark Borrecco, President and Chief Executive Officer. "We strengthened our capital position posting net income of $92.6 million and earnings per diluted share of $1.68 through the first half of fiscal year 2021, along with 17.4% return on average common equity. Credit quality also showed progress with both nonaccrual and classified loans down 12.4% this fiscal year, and loans with payment deferrals dropping to $19.7 million. This improvement, along with our allowance for credit loss coverage of 3.50% excluding PPP, reinforces our conservative approach on managing underwriting and risk management of the portfolio as our markets evolve into their new normal post pandemic.

In addition, we are excited to launch our new small business platform, which will transform the small business client experience while reducing our average small business loan closing time from 22 days to 3. This enhancement, along with our investments in treasury management and the improving outlook for the agricultural loan portfolio positions Great Western well for building momentum."

Impact and Response to COVID-19 Pandemic

We remain focused on keeping our employees safe and our bank running effectively to serve our customers. Our branches have been reopened across our footprint, and we are targeting 75% employee occupancy in our offices by June, with plans for return in August involving remote work optionality and adherence to CDC guidelines in the office. For our customers, we have supported PPP, having provided $727.3 million in loans to over 4,800 customers in the first round followed by $196.0 million to over 2,500 customers in the second round. Related to PPP forgiveness, we have processed $356.5 million of loans for over 2,000 customers. Additionally, we have granted both full and partial payment deferrals to help provide relief from COVID-19, which resulted in a peak of $1.69 billion of loans on deferral as of the third quarter of fiscal year 2020. As of April 16, 2021 the balance of loans with a payment deferral was $19.7 million, or 0.24% of total loans excluding PPP, compared to $113.0 million as of January 13, 2021.

Net Interest Income and Net Interest Margin¹

Net interest income was $104.4 million for the quarter, a decrease of $5.1 million, while net interest margin was 3.51%, a 12 basis point decrease from 3.63%. Adjusted net interest income² was $101.3 million, a decrease of $4.8 million, and adjusted net interest margin² was 3.40%, also a 12 basis point decrease from 3.52%. Interest income was lower by $6.6 million as loan interest decreased by $7.1 million while securities and other interest income increased by $0.5 million. Loan interest reflects a $2.2 million decrease in nonaccrual interest recoveries, a $4.4 million decrease driven by lower loan volumes, and a $4.7 million decrease due to lower day count and other loan fees, all partially offset with a net $4.2 million increase in PPP interest and fee income. The decrease in interest income was partially offset by a $1.6 million decrease in interest expense driven by a $0.7 million decrease from lower time deposit volumes and a 16 basis point decrease in yield to 0.52% combined with a net $0.8 million decrease driven primarily by a 5 basis point decrease in yield of interest-bearing deposits to 0.17%.

Noninterest Income

Noninterest income was $17.2 million for the quarter, an increase of $3.0 million from the prior quarter. The increase was driven by a $2.4 million increase in other derivative income from a favorable credit adjustment on derivatives and a $1.7 million improvement in FVO credit risk. These were partially offset by a $1.0 million decrease in service charges from lower overdraft activity and a seasonal decrease in crop insurance revenue.

Noninterest Expense

Total noninterest expense was $59.1 million for the quarter, an increase of $1.7 million from the prior quarter. The increase was driven by a $1.6 million increase in salaries and benefits due to annual merit increases and accrued incentives, a $0.3 million increase in data processing costs due to various software maintenance and upgrades, a $0.4 million increase in consulting costs to support strategic initiatives and a $0.3 million increase in seasonal grounds maintenance. These were partially offset by a $0.4 million decrease in other real estate owned operating costs and a $0.5 million decrease in FDIC insurance premiums.

The efficiency ratio² was 48.4% for the quarter, compared to 46.2% for the prior quarter.

Provision for Income Taxes

Income tax expense was $14.7 million for the quarter, an increase of $3.3 million from the prior quarter, yielding an effective rate of 22.2% compared to 21.6%.

Asset Quality

The ACL, as quantified by the Company under the CECL methodology adopted October 1, 2020, was $296.0 million as of March 31, 2021, a decrease of $12.8 million from $308.8 million as of December 31, 2020. The decrease was primarily driven by the lower loan volumes and the impact from improved economic forecast assumptions. The ratio of ACL to total loans was 3.28% as of March 31, 2021, an increase from 3.24% as of December 31, 2020. Excluding PPP loans the ratio was 3.50% for the current and prior quarter.

Net charge-offs were $7.8 million, or 0.34% of average total loans (annualized) for the quarter, down $22.6 million and 88 basis points from the prior quarter, respectively. The decrease was driven primarily by $25.6 million of charge-offs that occurred in the prior quarter related to a bulk sale of hotel portfolio loans.

As a result, the provision for credit losses on loans resulted in a $5.0 million net benefit for the quarter, compared to an $11.9 million provision in the prior quarter, as the required reserves released from the decreased loan volume more than offset the net charge-offs in the period.

Included within total loans are approximately $568.9 million of loans, down from $611.6 million as of December 31, 2020, with long-term, fixed rate structures using derivatives for which management has elected the fair value accounting option. These loans are excluded from CECL and the ACL, but management has estimated that approximately $27.4 million of the fair value adjustment for these loans relates to credit risk, which is 4.82% of the fair value option loans and 0.30% of total loans, compared to approximately $27.5 million of the fair value adjustment for these loans relates to credit risk, which is 4.49% of the fair value loans and 0.29% of total loans as of December 31, 2020.

Nonaccrual loans were $284.5 million as of March 31, 2021, a decrease of $7.9 million from $292.4 million as of December 31, 2020, largely driven by two payoffs from successful workouts and no material downgrades. Classified loans, which include nonaccrual loans, were $673.9 million as of March 31, 2021, a decrease of $43.0 million from $716.9 million as of December 31, 2020, driven by a $23.0 million decrease in agriculture loans from a number of upgrades and payoffs, the sale of a $23.5 million classified hotel loan, and the upgrade of a $35.8 million agri-related relationship, all partially offset with $41.4 million in downgraded hotel loans. Total other repossessed property balances were $17.5 million for the quarter, a decrease of $0.6 million from the prior quarter.

A summary of total credit-related charges incurred during the current and comparable six month periods and current, previous and comparable quarters is presented below:

We continue to evaluate the impact of COVID-19 on our loan portfolio. Industries such as hotels & resorts (excluding casino hotels), casino hotels, restaurants, theaters, oil & energy, retail malls, airlines and healthcare have experienced uncharacteristic revenue loss due to COVID-19. Since the beginning of the pandemic we have been closely monitoring the following loan segments (excluding PPP loans) given elevated industry risk from COVID-19: hotels & resorts (excluding casino hotels) with $783.7 million, or 9.3% of total loans, restaurants with $124.3 million, or 1.5% of total loans, arts and entertainment with $119.4 million, or 1.4% of total loans, senior care with $314.2 million, or 3.7% of total loans, and skilled nursing with $212.3 million, or 2.5% of total loans, for a total exposure of $1.55 billion, or 18.4% of total loans excluding PPP loans, and $205.9 million of which was classified as of March 31, 2021. Loan exposure in such other identified industries is either immaterial or has not shown general distress thus far.

Loans and Deposits

Total loans outstanding were $9.01 billion as of March 31, 2021, a decrease of $506.5 million from the prior quarter. The decrease in loans during the quarter was driven by a $132.7 million net decrease in PPP loans, paydowns of criticized loans, commercial real estate loans refinanced in the secondary market and an increase in paydowns across commercial, agriculture and consumer from property sales and excess liquidity.

Total deposits were $11.56 billion as of March 31, 2021, an increase of $190.7 million from the prior quarter, driven by a $202.4 million increase in checking and savings balances and a $59.2 million increase in other interest-bearing deposits, partially offset by a $70.9 million decrease in time deposits.

Capital

Tier 1 and total capital ratios were 13.5% and 15.1%, respectively, as of March 31, 2021, compared to 12.7% and 14.3% as of December 31, 2020. The common equity tier 1 capital ratio and tier 1 leverage ratio were 12.8% and 10.0%, respectively, as of March 31, 2021, compared to 12.0% and 9.7% as of December 31, 2020. All regulatory capital ratios remain above regulatory minimums to be considered "well capitalized."

On April 29, 2021, the Company's Board of Directors declared a dividend of $0.01 per common share, payable on May 28, 2021 to stockholders of record as of close of business on May 14, 2021.

Conference Call

Great Western Bancorp, Inc. will host a conference call to discuss its financial results for the second quarter of fiscal year 2021 on Thursday, April 29, 2021 at 7:30 AM (CT). The call can be accessed by dialing (855) 238-8837 approximately 10 minutes prior to the start time. Please ask to be joined into the Great Western Bancorp, Inc. (GWB) call. International callers should dial (412) 542-4114. The call will also be broadcast live over the Internet and can be accessed by visiting ir.greatwesternbank.com. A replay will be available beginning one hour following the conference call and ending on May 13, 2021. To access the replay, dial (877) 344-7529 (U.S.) and use conference ID 10153589. International callers should dial (412) 317-0088 and enter the same conference ID number.

About Great Western Bancorp, Inc.

Great Western Bancorp, Inc. is the holding company for Great Western Bank, a full-service regional bank focused on relationship-based business banking. Great Western Bank offers small and mid-sized businesses a focused suite of financial products and a range of deposit and loan products to retail customers through several channels, including the branch network, online banking system, mobile banking applications and customer care centers. The bank services its customers through more than 170 branches in nine states: Arizona, Colorado, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota. To learn more about Great Western Bank visit www.greatwesternbank.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements about Great Western Bancorp, Inc.'s expectations, beliefs, plans, strategies, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as "anticipates," "believes," "can," "could," "may," "predicts," "potential," "should," "will," "estimate," "plans," "projects," "continuing," "ongoing," "expects," "views," "intends" and similar words or phrases. In particular, the statements included in this press release concerning Great Western Bancorp, Inc.'s expected performance and strategy, strategies for managing troubled loans, the impact on the business arising from the COVID-19 pandemic and the interest rate environment are not historical facts and are forward-looking. Accordingly, the forward-looking statements in this press release are only predictions and involve estimates, known and unknown risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed. All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that actual results will not differ materially from expectations, and, therefore, you are cautioned not to place undue reliance on such statements. Any forward-looking statements are qualified in their entirety by reference to the factors discussed in the sections titled "Item 1A. Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" in Great Western Bancorp, Inc.'s Annual Report on Form 10-K for the most recently ended fiscal year, Form 10-Q for the quarter ended December 31, 2020 and in other periodic filings with the Securities and Exchange Commission. Further, any forward-looking statement speaks only as of the date on which it is made, and Great Western Bancorp, Inc. undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

Non-GAAP Financial Measures and Reconciliation

We rely on certain non-GAAP financial measures in making financial and operational decisions about our business. We believe that each of the non-GAAP financial measures presented is helpful in highlighting trends in our business, financial condition and results of operations which might not otherwise be apparent when relying solely on our financial results calculated in accordance with GAAP. We disclose net interest income and related ratios and analysis on a taxable-equivalent basis, which may also be considered non-GAAP financial measures. We believe this presentation to be the preferred industry measurement of net interest income as it provides a relevant comparison of net interest income arising from taxable and tax-exempt sources. In addition, certain performance measures, including the efficiency ratio and net interest margin utilize net interest income on a taxable-equivalent basis.

In particular, we evaluate our profitability and performance based on our adjusted net income, adjusted earnings per common share, pre-tax pre-provision income ("PTPP"), tangible net income and return on average tangible common equity. Our adjusted net income and adjusted earnings per common share exclude the after-tax effect of items with a significant impact to net income that we do not believe to be recurring in nature, (e.g., one-time acquisition expenses as well as the second quarter of fiscal year 2020 COVID-19 impact on credit and other related charges and the impairment of goodwill and certain intangible assets). Our PTPP income excludes total provision for credit losses, credit gains/losses on loans held for investment measured at fair value and goodwill impairment. Our tangible net income and return on average tangible common equity exclude the effects of amortization expense relating to intangible assets and our acquisitions of other institutions. We believe these measures help highlight trends associated with our financial condition and results of operations by providing net income and return information excluding significant nonrecurring items (for adjusted net income and adjusted earnings per common share), measure our ability to generate capital by providing net income excluding credit losses (for PTPP income) and measure net income based on our cash payments and receipts during the applicable period (for tangible net income and return on average tangible common equity).

We also evaluate our profitability and performance based on our adjusted net interest income, adjusted net interest margin, adjusted interest income on loans and adjusted yield on loans. We adjust each of these four measures to include the derivative interest expense we use to manage interest rate risk on certain of our loans, which we believe economically offsets the interest income earned on the loans. Similarly, we evaluate our operational efficiency based on our efficiency ratio, which excludes the effect of amortization of core deposit and other intangibles (a non-cash expense item) and includes the tax benefit associated with our tax-advantaged loans.

We evaluate our financial condition based on the ratio of our tangible common equity to our tangible assets and the ratio of our tangible common equity to common shares outstanding. Our calculation of this ratio excludes the effect of our goodwill and other intangible assets. We believe this measure is helpful in highlighting the common equity component of our capital and because of its focus by federal bank regulators when reviewing the health and strength of financial institutions in recent years and when considering regulatory approvals for certain actions, including capital actions. We also believe the ratio of our tangible common equity to common shares outstanding is helpful in understanding our stockholders' relative ownership position as we undertake various actions to issue and retire common shares outstanding.

Reconciliations for each of these non-GAAP financial measures to the closest GAAP financial measures are included in the tables below. Each of the non-GAAP financial measures presented should be considered in context with our GAAP financial results included in this release.