July 29, 2019

Great Western Bancorp Inc. saw its earnings drop more than 40 percent in its third quarter after issues with its dairy portfolio that the company says included customer fraud.

The Sioux Falls-based holding company for Great Western Bank reported earnings of $26.8 million, or 47 cents per share, compared with $45.9 million, or 78 cents per share, for the same time last year.

Great Western’s provision for loan and lease losses was $26.1 million for the quarter, an increase of $18.4 million from the previous quarter. Net charge-offs for the quarter were $17.5 million, or 0.72 percent of average total loans on an annualized basis, and most were concentrated in the agriculture and commercial non-real estate segments of the loan portfolio.

The charge-offs included $10 million related to the cattle industry, of which $4 million involved a cattle feed operator the company says it believes was involved in borrower fraud. There were $3 million in charge-offs related to loans in the grain industry. The relationships had been classified as substandard for a number of previous quarters. The charge-offs also included $4 million to a retailer the bank says was involved in borrower fraud.

“We are pleased with the loan growth, expense control and how we have managed our net interest margin during the quarter,” chairman and CEO Ken Karels said.

“The recent deterioration in our asset-quality metrics has been disappointing, but this is limited mainly to the dairy loan portfolio, and a couple of instances of customer fraud. We believe the overall asset quality within the remainder of the portfolio remains stable.”

Total loans were $9.9 billion as of June 30, an increase of 1.2 percent during the quarter. They are up 5 percent year-over-year through three quarters.

“We are pleased that we remain solidly profitable and have made good progress on managing the cost of our deposits during the quarter,” Karels said. “Loan growth was good and well diversified across the footprint, and we continue to manage our expense base well. We are disappointed with the level of charge-offs, provisioning and movements into substandard loans during the quarter, but we expect to work these asset-quality metrics to levels that are more acceptable over the coming quarters.”

The bank’s stock closed at $33.93 per share Friday, up 48 cents. Great Western has more than 170 branches in nine states.