Great Western Bancorp, Inc. Announces Fiscal Year 2018 First Quarter Financial Results

Highlights for the First Quarter of Fiscal Year 2018 (all comparisons in this document refer to the fourth quarter of fiscal year 2017, except as noted)

• First quarter net income was $29.2 million, or $0.49 per diluted share, compared to $37.7 million, or $0.64 per diluted share
• Adjusted net income¹, which excludes the nonrecurring charge to provision for income taxes of $13.6 million related to revaluation of the Company's deferred taxes, was $42.8 million or $0.72 per diluted share
• Net interest margin and adjusted net interest margin^{1, 2} were 3.89% and 3.80%, respectively, decreases of 4 and 2 basis points, respectively, with each change impacted by a lower tax equivalent adjustment resulting from a lower tax rate
• The efficiency ratio¹ improved to 45.8% from 47.1%
• Total loans increased $196.8 million, an annualized increase of 8.7%, while total deposits grew by $46.6 million
• Net charge-offs recognized during the quarter were 0.18% of average total loans on an annualized basis, a reduction compared to each quarter of fiscal year 2017

Great Western Bancorp, Inc. (NYSE: GWB) today reported net income of $29.2 million, or $0.49 per diluted share, for the first quarter of fiscal year 2018, compared to net income of $37.7 million, or $0.64 per diluted share, for the fourth quarter of fiscal year 2017. Adjusted net income¹, which excludes the deferred taxes revaluation triggered by the Tax Cuts and Jobs Act of 2017, was $42.8 million or $0.72 per diluted share.

"We are pleased to report a strong underlying financial result for the quarter," said Ken Karels, Chairman, President and Chief Executive Officer. "Our loan growth was strong, we continued to manage costs well and overall credit quality trends remain favorable. As a result of corporate tax reform, we were required to adjust the value of our deferred taxes, but we already began to benefit from a lower statutory tax rate during the quarter and expect that we will earn back the amount of the deferred tax charge within this fiscal year. Finally, we were very pleased to announce earlier this month compensation and benefit increases for many of our employees and increased investments in other parts of our business directly resulting from tax reform and the savings we expect to incur."

Impact of the Tax Cuts and Jobs Act of 2017

The Tax Cuts and Jobs Act of 2017 significantly impacted the Company's financial results for the quarter and going forward. The three main impacts include:

• A nonrecurring reduction in the carrying value of the Company's deferred taxes of $13.6 million, equating to $0.23, or 1.3%, of the Company's tangible book value per share¹ and a reduction of approximately 15 basis points to the total capital ratio as of December 31, 2017 and $0.23 per diluted share for the quarter ended December 31, 2017;
• A reduction in the statutory federal tax rate upon which the Company's net income before taxes is taxed beginning with the current fiscal year ending September 30, 2018. Because of the Company's fiscal year end, a blended statutory federal tax rate of 24.5% is applied to all net income before taxes generated during the current fiscal year and the overall effective tax rate for the fiscal year is expected to be approximately 26.0%. Compared to the previous statutory tax rate, the blended rate reduced the provision for income taxes by approximately $5.0 million for the quarter ended December 31, 2017. Beginning in fiscal year 2019, the Company's net income will be taxed at the 21.0% statutory federal tax rate; and
• A reduction in the tax-related benefit generated by tax-advantaged assets. The tax equivalent adjustment to net interest income and net interest margin was $1.6 million for the current quarter, compared to $2.1 million in the prior quarter, on a consistent asset base. This change reduced net interest margin and adjusted net interest margin^{1, 2} in the current quarter by approximately 2 basis points and increased our efficiency ratio¹ by a negligible amount.

Net Interest Income and Net Interest Margin ²

Net interest income was $102.2 million for the first quarter of fiscal year 2018, an increase of $0.4 million, or 0.4%, compared to the prior quarter. The increase was primarily attributable to higher loan interest income driven by 1.2% growth in average loans outstanding between periods and a modest increase in investment portfolio income driven by rising interest rates, partially offset by higher interest expense associated with interest-bearing deposits and borrowings.

The consolidated income statements have been revised to correct an immaterial classification error in interest income and noninterest income related to credit card interchange income for the current quarter and all comparable periods presented. This change has no impact on net income, total revenue¹, earnings per share, retained earnings, capital ratios or efficiency ratio¹ for any period. Net interest margin and adjusted net interest margin¹ are reduced by seven to eight basis points for each period presented, but there is no material impact to the trend for either of these metrics.

Net interest margin was 3.89% and 3.93%, respectively, for the quarters ended December 31, 2017 and September 30, 2017. Adjusted net interest margin¹, which adjusts for the realized gain (loss) on interest rate swaps, was 3.80% and 3.82%, respectively, for the same periods. The yield on total loans decreased 2 basis points and the cost of deposits increased by 1 basis point. The reduction in the magnitude of the tax equivalent adjustment driven by a lower statutory tax rate reduced each metric by approximately 2 basis points.

Total loans outstanding were $9.17 billion as of December 31, 2017, an increase of $196.8 million, or 2.2%, for the quarter, and 8.7% on an annualized basis. The majority of the growth during the quarter occurred in the commercial real estate ("CRE") segment of the portfolio, which increased by $170.9 million, including strong growth in owner-occupied CRE and construction loans. Agriculture loans increased by $55.2 million, with approximately $20 million of that growth resulting from short-term advances required by many of our dairy customers for tax planning purposes that have already been repaid.

Total deposits grew $46.6 million, or 0.5%, during the quarter. Noninterest-bearing deposits were $1.93 billion, a 4.1% increase, for the quarter and interest-bearing deposits were $7.09 billion, a 0.4% decrease for the quarter. FHLB and other borrowings increased by $77.8 million, or 12.1%, as a result of loan growth during the quarter exceeding net deposit growth.

Provision for Loan and Lease Losses and Asset Quality

Provision for loan and lease losses was $4.6 million for the first quarter of fiscal year 2018, a decrease of $0.1 million, or 2.7%. Net charge-offs for the first quarter were $4.0 million, or 0.18% of average total loans on an annualized basis, with the majority of net charge-offs concentrated in the agriculture and commercial non-real estate segments of the loan portfolio. The ratio of allowance for loan and lease losses ("ALLL") to total loans was 0.70% at December 31, 2017, a decrease from 0.71%.

Included within total loans are approximately $980.1 million of loans for which management has elected the fair value option. These loans are excluded from the ALLL process, but management has estimated that approximately $6.2 million 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 acquired loans equates to 0.29% of total loans.

At December 31, 2017, loans graded "Watch" were $287.5 million, a decrease of $24.1 million, or 7.7%. Loans graded "Substandard" were $247.7 million, an increase of $14.8 million, or 6.4%. The decrease in "Watch" graded loans and the increase in "Substandard" graded loans was primarily driven by the deterioration of a small number of CRE relationships.

Nonaccrual loans were $147.3 million as of December 31, 2017, with $4.1 million of the balance covered by FDIC loss-sharing agreements. Total nonaccrual loans increased by $9.0 million during the quarter, primarily driven by one CRE loan relationship. Total other repossessed property balances were $10.5 million as of December 31, 2017, an increase of $1.5 million, or 16.7%.

As of mid-January, annual reviews have been completed on approximately 70% of agriculture loan relationships with maturity dates between November 1, 2017 and January 15, 2018. Growers' 2017 performance was broadly in line with expectations and risk rating changes are expected to be minimal with upgrades modestly exceeding downgrades.

Total credit-related charges decreased compared to the previous quarter. A summary of total credit-related charges incurred during the current and prior quarters is presented below:

Noninterest Income

Noninterest income was $16.7 million for the first quarter of fiscal year 2018, an increase of $1.9 million, or 13.1%. The net effect of the change in the fair value of loans for which the Company has elected the fair value option and the net gain (loss), realized and unrealized, of the related derivatives was $2.2 million favorable, partially offset by a $0.6 million reduction in service charges and other fees primarily driven by the full quarter impact of the "Durbin Amendment" limit on debit card interchange income.

Noninterest Expense

Total noninterest expense was $54.9 million for the first quarter of fiscal year 2018, a decrease of $0.5 million, or 0.8%. Other noninterest expense, comprised of a number of miscellaneous items, decreased by $1.0 million and data processing decreased by $0.6 million as a result of lower communications cost. Salaries and employee benefits increased by $1.6 million, driven primarily by items related to fiscal year-end including vesting of share-based awards, incentive compensation and the related payroll taxes.

The efficiency ratio¹ was 45.8% for the quarter, a decrease from 47.1%.

Provision for Income Taxes

The provision for income taxes for the first fiscal quarter ended December 31, 2017 was $28.6 million, reflecting an effective tax rate of 49.5% of income before income taxes, compared to an effective tax rate of 30.8%. Excluding the deferred taxes adjustment, the effective tax rate was 26.0%. See "Impact of the Tax Cuts and Jobs Act of 2017" above for discussion of material income tax items for the quarter.

Capital

Tier 1 and total capital ratios were 11.3% and 12.3%, respectively, as of December 31, 2017, compared to 11.4% and 12.5%, respectively. The common equity tier 1 capital ratio was 10.5% as of December 31, 2017 compared to 10.7%. The tier 1 leverage ratio was 10.3% as of December 31, 2017 and September 30, 2017. All regulatory capital ratios remain above regulatory minimums to be considered "well capitalized." The revaluation of the Company's deferred taxes reduced the total capital ratio by approximately 15 basis points.

On January 25, 2018, the Company's Board of Directors declared a dividend of $0.20 per common share payable on February 21, 2018 to stockholders of record as of close of business on February 9, 2018. The aggregate dividend payment will be approximately $11.8 million.

Business Outlook

"We are very happy with the strong start to our fiscal year," added Karels. "We believe the recently enacted tax reform will generate meaningful savings that we can use to invest in our people and our business and materially increase our return profile for investors. Furthermore, we are hopeful that we will see regulatory reform in 2018 that will significantly reduce the compliance burden on Great Western Bank and many of our competitors and allow us to devote more energy and resources to continuing to grow this high-performing organization."

Conference Call

Great Western Bancorp, Inc. will host a conference call to discuss its financial results for the first quarter of fiscal year 2018 on Thursday, January 25, 2018 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 in the Investor Relations section of Great Western's website at www.greatwesternbank.com. A replay will be available beginning one hour following the conference call and ending on February 8, 2018. To access the replay, dial (877) 344-7529 (U.S.) and use conference ID 10115205. 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 and agribusiness 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, the effects of tax reform, the outlook for its agricultural lending segment 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 fiscal year ended September 30, 2017. 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.

¹ This is a non-GAAP financial measure management believes is helpful to interpreting our financial results. See the tables at the end of this document for the calculation of the measure and reconciliation to the most comparable GAAP measure.

² Annualized for all partial-year periods.

¹ Other loans primarily include consumer and commercial credit cards, customer deposit account overdrafts, and lease receivables.

¹ Annualized for all partial-year periods.

² Interest income includes $0.6 million and $1.4 million for the first quarter of fiscal year 2018 and 2017, respectively, resulting from accretion of purchase accounting discount associated with acquired loans.

Non-GAAP Measures and Reconciliation

We rely on certain non-GAAP measures in making financial and operational decisions about our business. We believe that each of the non-GAAP 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 U.S. generally accepted accounting principles, or 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, 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 effect of revaluation of deferred taxes). Our tangible net income and return on average tangible common equity exclude the effects of amortization expense relating to intangible assets and related tax effects from the acquisition of us by National Australia Bank Limited ("NAB") 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 share) and 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 non ASC 310-30 loans and adjusted yield on non ASC 310-30 loans. We adjust each of these four measures to include the current realized gain (loss) of derivatives 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 measures presented should be considered in context with our GAAP financial results included in this release.

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