Agricultural issues, borrower fraud to cut into Great Western's profit

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Great Western Bancorp in Sioux Falls, S.D., warned that higher credit costs hit its bottom line in the second quarter.

The $12.8 billion-asset company disclosed in a Wednesday press release that it expects to report a profit of $26 million to $27.5 million for its fiscal third quarter that ended June 30. That would represent a decrease of at least 38% from what it reported a quarter earlier.

The decline will reflect $31 million to $33.5 million in charge-offs tied to issues in the company’s dairy and cattle loan portfolios and borrower fraud. Net charge-offs are expected to total $18 million, or triple what the company reported in the prior quarter, with agricultural loans accounting for 72% of the likely total.

Great Western said $4 million of the net charge-offs is tied to a case where it believes a cattle feed operator committed borrower fraud.

Great Western forecast a loan-loss provision of $26 million to $27.5 million and a loan fair value adjustment to credit of $5 million to $6 million.

Substandard loans are expected to increase by 84% from a quarter earlier, to $476 million.

“The company has not completed its financial close processes for the quarter and therefore actual amounts could differ from amounts the company anticipates at this date,” the filing 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," Ken Karels, Great Western’s CEO, said in the release.

Great Western is set to report its earnings on July 25.

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