Great Western sees Q3 net income $26M-$27.5M vs. $44.5M in Q2
Great Western Bancorp announced an anticipated decline in net income for Q3 compared to Q2 due primarily to an increase in credit-related charges. For Q3, the company expects to report net income in the range of $26M to $27.5M, compared to $44.5M for Q2. The decline in net income is primarily attributable to increases in credit-related charges centered largely in the dairy and cattle loan portfolios and borrower fraud, which we expect to be between $31M-$33.5M for the quarter. The company expects to report provision for loan and lease losses of $26M-$27.5M for the quarter, and loan fair value adjustment related to credit of $5M-$6M for the quarter. Net charge-offs on loans are expected to be approximately $18M compared to $6M for quarter ended March 31. The agriculture segment accounted for $13M of the charge-offs this quarter - $10M relate to loans in the cattle industry which were based upon new and/or updated information received during the quarter, of which $4M is with respect to a cattle feed operator in which the company believes involved borrower fraud, and $3M relate to loans in the grain industry. These relationships have been classified as substandard for a number of previous quarters. This quarter's charge-offs also include approximately $4M to a retailer which the company believes involved borrower fraud and the remaining $1M relates to another commercial exposure. Substandard loans are expected to increase to approximately $476M compared to $259M at March 31. The increase in substandard loans is primarily as a result of new and/or updated information resulting in downgrades within the dairy and cattle loan portfolios. The company believes it remains well collateralized on these lending relationships. Watch-rated categorized loans are expected to be approximately $221M compared to $301M at March 31. The company also expects to report the ratio of allowance for loan and lease losses to total loans at June 30 to be approximately 77 basis points, an estimated increase of 7 basis points from March 31. All regulatory capital ratios are expected to remain at levels consistent with the prior quarter and are considered "well capitalized." Ken Karels, CEO and chairperson of the board, said, "Despite these credit issues, we remain solidly profitable and such results are not believed to be reflective of the remainder of our loan portfolio."