FOR IMMEDIATE RELEASE:

Guaranty Bancorp Announces 2014 Third Quarter Financial Results

 

DENVER, October 15, 2014 - Guaranty Bancorp (Nasdaq: GBNK) (“we”, “our” or “the Company”), a community bank holding company based in Colorado, today announced third quarter 2014 net income of $4.7 million or $0.22 per basic and diluted common share as compared to $3.9 million or $0.18 per basic and diluted common share in the prior-year third quarter, an increase of $0.8 million or $0.04 per basic and diluted common share. The Company’s pre-tax operating earnings(2) in the third quarter 2014 were $7.1 million or $0.34    per basic and diluted common share, an increase of $1.6  million or $0.07 per basic and diluted common share as compared to the same quarter in 2013. Return on average assets for the third quarter 2014 was 0.91% as compared to 0.81% for the prior-year third quarter.

 

“Our strong third quarter results demonstrate our continued progress in the improvement of our key operating metrics,” said Paul W. Taylor, President and CEO. “In addition to solid earnings and loan growth, core deposits grew by 30.1% annualized as we focus on relationship based banking and continue to benefit from growth in the local Colorado economy.  I am especially pleased with our return on average assets of 91 basis points, an increase of 8 basis points during the quarter. This accomplishment was a result of the overall success we are having across our organization in growing our balance sheet and net interest income along with increasing our noninterest income. The significant improvement in our efficiency ratio of 2.4 percentage points to 63.7% during the third quarter 2014 reflects our continued focus on responsibly managing our growth while controlling expenses.”

 

The $1.6 million increase in pre-tax operating earnings in the third quarter 2014 as compared to the same quarter in the prior year was primarily due to a $1.7 million improvement in interest income, attributable to growth in average loan balances of $195.4 million, while maintaining a consistent level of interest expense. 

 

For the nine months ended September 30, 2014, net income was $12.3 million or $0.59 per basic common share and $0.58 per diluted common share, an increase of $2.4 million, or $0.11 per basic and diluted common share as compared to the same period in 2013. Pre-tax operating earnings were $18.6 million or $0.89 per basic and $0.88 per diluted common share for the nine months ended September 30, 2014, an increase of $3.6 million or $0.17 per basic and diluted common share for the same period in 2013. Return on average assets for the nine months ended September 30, 2014 was 0.83% as compared to 0.72% for the same period in 2013.

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The $3.6 million increase in pre-tax operating earnings for the nine months ended September 30, 2014 as compared to the same period in the prior year was mostly the result of a $3.6 million increase in interest income, due to growth in average loan balances of $182.4 million.

 

Key Financial Measures

Income Statement

 

 

 

 

Balance Sheet

 

 

 

 

New credit extended and advanced during the third quarter 2014 was $172.0 million, an increase of $10.3 million compared to $161.7 million in the second quarter 2014. However, net loan paydowns and other reductions totaled $128.9 million in the third quarter 2014 compared to $86.1 million in the second quarter 2014. The $42.8 million increase in net paydowns and maturities in the third quarter 2014 was mostly due to early commercial loan payoffs related to four clients successfully selling their businesses. Despite the highest quarter of gross loan production in over six years, the larger loan paydowns in the third quarter 2014 resulted in net loan growth of $44.2 million, or 12.2% annualized compared to $75.8 million of net loan growth in the second quarter 2014, or 22.3% annualized. In addition to the continued strong net loan growth, the Company’s commercial loan group assisted a local non-profit organization with their analysis of an $8.0 million financing for expansion purposes.  The non-profit organization chose to do the financing as a tax-exempt bond through one of Colorado’s public authorities and the Company purchased their entire $8.0 million tax-exempt private placement bond and booked it as an investment security during the third quarter 2014. Excluding this transaction, on a year-to-date basis, net loans increased $161.8 million, or 16.4% annualized compared to $134.5 million, or 15.5% for the same period in 2013. 

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Net Interest Income and Margin

 

 

 

Net interest income improved $1.7 million to $17.8 million in the third quarter 2014 as compared to the same quarter in 2013 due to an increase in interest income primarily driven by a $195.4 million, or 15.4% increase in average loan balances. Interest expense remained relatively flat in the third quarter 2014 as compared to the same quarter in the prior year despite a $71.0 million increase in average interest bearing deposits. 

 

During the third quarter 2014, net interest margin increased by four basis points to 3.67% as compared to the same quarter in the prior year and increased one basis point as compared to the second quarter 2014. The increase in net interest margin in the third quarter 2014 as compared to the second quarter 2014 and the third quarter 2013 was primarily the result of a change in the mix of average earning assets primarily due to loan growth.

 

Net interest income improved by $4.0 million for the nine months ended September 30, 2014 to $51.1 million compared to $47.2 million during the same period in 2013. The increase in net interest income was the result of a $3.6 million increase in interest income combined with a $0.4 million decline in interest expense. The increase in interest income was driven by a $182.4 million increase in average loan balances for the nine months ended September 30, 2014 as compared to the same period in 2013. The decrease in year-to-date interest expense in 2014 as compared to the same period in 2013 was mostly due to the early redemption of high-cost TruPS and related subordinated debentures during the first quarter 2013 combined with a two basis point decline in the cost of deposits. 

 

Net interest margin increased five basis points to 3.67% for the nine months ended September 30, 2014 as compared to 3.62% for the same period in 2013, primarily due to a change in the mix of average earnings assets as a result of loan growth combined with a decline in the average cost of deposits and early redemption of TruPS and related subordinated debentures during the first quarter 2013. 

 

Noninterest Income

 

The following table presents noninterest income as of the dates indicated:

 

 

 

 

Third quarter 2014 noninterest income was $4.3 million as compared to $3.8 million in the second quarter 2014 and $3.7 million in the third quarter 2013.

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The $0.5 million increase in noninterest income in the third quarter 2014 as compared to the second quarter 2014 was mostly due to a  $0.3 million increase in investment management and trust income and a $0.2 million increase in gains on sale of SBA loans. As compared to the third quarter 2013, noninterest income increased $0.6 million primarily due to a $0.5 million increase in investment management and trust income and a $0.2 million increase in customer interest rate swap fee income.

 

Total assets under management at September 30, 2014 were $675.4 million, an increase of $244.3 million, or 56.7% as compared to September 30, 2013. During the third quarter 2014, the Company acquired Cherry Hills Investment Advisors with assets under management of $178.5 million at July 16, 2014.

 

For the nine months ended September 30, 2014, noninterest income increased $1.4 million as compared to the same period in 2013. This increase was the result of a $1.1 million increase in investment management and trust income and a $0.3 million increase in customer interest rate swap income. 

 

Noninterest Expense

 

The following table presents noninterest expense as of the dates indicated:

 

 

 

 

 

Noninterest expense was $15.1 million in the third quarter 2014 as compared to $14.9 million in the second quarter 2014 and $13.9 million in the third quarter 2013. 

 

Third quarter 2014 noninterest expense increased $0.2 million as compared to the second quarter 2014, primarily due to a $0.1 million loss on sale of other real estate owned (“OREO”) recognized in the third quarter and a $0.1 million increase in other general and administrative expense. Noninterest expense increased $1.2 million for the third quarter 2014 as compared to the same quarter in 2013, which was driven by a $0.6 million increase in salaries, a $0.3 million increase in equity compensation and a $0.3 million increase in OREO-related expenses.

 

Year-to-date 2014 noninterest expense was $44.6 million as compared to $43.0 million for the same period in 2013. Noninterest expense includes a $2.4 million increase in salary and employee benefit expense comprised of a $1.1 million increase in salaries, a $0.7 million increase in equity compensation and a $0.3 million increase in costs related to our self-funded medical insurance plan. The increase in salaries and equity compensation for the nine months ended September 30, 2014 as compared to the same period in the prior year was primarily due to the achievement of key performance targets. Most other categories of noninterest expense decreased during the nine months ended September 30, 2014 as compared to the same period in the prior year, including a decrease of $0.6 million related to prepayment penalties on long-term debt incurred in 2013 and several smaller declines in occupancy, furniture and equipment, amortization of intangible assets and professional fees.

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Balance Sheet

 

 

 

 

 

At September 30, 2014, the Company had total assets of $2.1 billion, reflecting a $166.9 million increase compared to December 31, 2013 and a $181.7 million increase compared to September 30, 2013. The increase in total assets during the nine months ended September 30, 2014 includes a $161.8 million increase in loans,  an $18.5 million increase in cash, and a $13.8 million increase in investments, partially offset by a $21.9 million decrease in securities sold or called, not yet settled.

 

The following table sets forth the amounts of loans outstanding at the dates indicated:

 

 

During the nine months ended September 30, 2014, loans net of unearned fees increased by $161.8 million, or 16.4% annualized. During the third quarter 2014, loans increased $44.2 million primarily due to a $52.0 million increase in commercial and residential real estate and an $11.4 million increase in construction loans, partially offset by a $21.1 million decline in commercial loans, mostly due to $28.3 million in early payoffs resulting from the sale of four client’s businesses. Commercial and residential real estate growth was comprised mostly of loans to finance the acquisition and development of multi-family and mixed-use retail/office commercial properties in Colorado as well as $10.3 million in jumbo mortgage loans.

 

As compared to September 30, 2013, loans net of unearned fees increased by $189.0 million, or 14.6%. The net loan growth was primarily comprised of a $167.0 million increase in commercial and residential real estate loans, including a $42.8 million increase in jumbo mortgage loans and a $17.8 million increase in construction loans. The growth in loans was primarily the result of new customer relationships. The utilization rate on commercial lines of credit was 41.0% at September 30, 2014 as compared to 41.5% at June 30, 2014 and 42.8% at September 30, 2013.

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The following table sets forth the amounts of deposits outstanding at the dates indicated:

 

 

 

Non-maturing deposits increased $103.6 million in the third quarter 2014 as compared to the second quarter 2014, and increased $171.0 million, or 13.2%, as compared to the third quarter 2013. At September 30, 2014, noninterest bearing deposits as a percentage of total deposits was 37.2% as compared to 37.2% at June 30, 2014 and 35.4% at September 30, 2013.

 

During the third quarter 2014, securities sold under agreements to repurchase increased by $1.9 million compared to June 30, 2014 and decreased by $5.5 million compared to September 30, 2013.

 

Total Federal Home Loan Bank (“FHLB”) borrowings were $150.4 million at September 30, 2014 consisting of $110.0 million of term notes and $40.4 million of overnight advances on our line of credit.  

 

Regulatory Capital Ratios

 

The following table provides the capital ratios of the Company and our subsidiary bank, Guaranty Bank and Trust Company (“Bank”) as of the dates presented, along with the applicable regulatory capital requirements:

 

 

The declines in the consolidated total risk-based capital ratio and Tier 1 risk-based capital ratio from December 31, 2013 to September 30, 2014 were primarily attributable to the loan growth during the first nine months of 2014. The Company has computed its projected regulatory capital ratios on a pro forma basis under the final rule on Enhanced Regulatory Capital Standards, commonly referred to as Basel III. The Company and the Bank currently exceed the capital requirements set forth in the new rules that become effective in the first quarter 2015. 

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Asset Quality

 

The following table presents select asset quality data as of the dates indicated:

 

 

 

 

 

The following tables summarize past due loans held for investment by class as of the dates indicated:

 

 

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During the third quarter 2014, nonperforming assets decreased $1.5 million from June 30, 2014 and decreased $7.5 million from September 30, 2013. Nonperforming loans at September 30, 2014 includes one out-of-state loan participation with a balance of $10.0 million. 

 

At September 30, 2014, classified assets represented 13.4% of bank-level Tier 1 Capital plus allowance for loan losses compared to 12.7% at December 31, 2013 and 15.0% at September 30, 2013. The increase in this ratio during 2014 was primarily the result of an $8.7 million loan transferred to classified assets during the second quarter.

 

Net recoveries in the third quarter 2014 were $0.2 million as compared to net recoveries of $0.6 million in the second quarter 2014 and net recoveries of $0.1 million in the third quarter 2013. The coverage ratio, defined as allowance for loan losses divided by nonperforming loans, increased favorably from 159.6% at June 30, 2014 to 168.8% at September 30, 2014. The increase in the coverage ratio reflects a $0.6 million reduction in nonperforming loans during the quarter in addition to the $0.2 million increase in the allowance for loan losses during the third quarter 2014.

During the quarter ended September 30, 2014, the Company recorded an immaterial credit provision for loan losses compared to an immaterial provision in the second quarter 2014 and a $0.1 million provision in the third quarter 2013. The Company considered the $0.2 million in net recoveries received during the third quarter 2014 when determining the adequacy of the allowance for loan losses and the resulting loan loss credit provision recognized during the same quarter.

Shares Outstanding

 

As of September 30, 2014, the Company had 21,714,115 shares of common stock outstanding, consisting of 20,695,115 shares of voting common stock, of which 746,782 shares were in the form of unvested stock awards and 1,019,000 shares of non-voting common stock. 

 

Non-GAAP Financial Measures

 

This press release contains certain non-GAAP financial measures related to tangible assets, including tangible book value and tangible common equity, pre-tax operating earnings adjusted for (if any) provision (credit) for loan losses, OREO expenses, debt termination expense, acquisition, reorganization and integration costs and securities gains and losses. 

 

The Company discloses these non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of the Company’s core financial performance. Management believes that these non-GAAP financial measures allow for additional transparency and are used by some investors, analysts and other users of the Company’s financial information as performance measures. These non-GAAP financial measures are presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with GAAP. These non-GAAP financial measures presented by the Company may be different from non-GAAP financial measures used by other companies. 

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The following non-GAAP schedule reconciles the non-GAAP pre-tax operating earnings to GAAP net income before income taxes as of the dates indicated:

 

 

 

 

 

The following non-GAAP schedules reconcile the book value per share to the tangible book value per share and the GAAP equity ratio to the tangible equity ratio as of the dates indicated:

 

 

 

 

 

 

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About Guaranty Bancorp

 

Guaranty Bancorp is a bank holding company that operates 26 branches in Colorado through a single bank, Guaranty Bank and Trust Company. The Bank provides banking and other financial services including commercial and industrial, real estate, construction, energy, consumer and agricultural loans throughout its targeted Colorado markets to consumers and small to medium-sized businesses, including the owners and employees of those businesses. The Bank and its subsidiaries also provide wealth management services, including private banking, investment management, jumbo mortgage loans and trust services. More information about Guaranty Bancorp can be found at www.gbnk.com.

 

Forward-Looking Statements 

 

This press release contains forward-looking statements, which are included in accordance with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of such terms and other comparable terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company’s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: failure to maintain adequate levels of capital and liquidity to support the Company’s operations; general economic and business conditions in those areas in which the Company operates; demographic changes; competition; fluctuations in interest rates; continued ability to attract and employ qualified personnel; ability to receive regulatory approval for the bank subsidiary to declare dividends to the Company; adequacy of the allowance for loan losses, changes in credit quality and the effect of credit quality on the provision for credit losses and allowance for loan losses; changes in governmental legislation or regulation, including, but not limited to, any increase in FDIC insurance premiums; changes in accounting policies and practices; changes in business strategy or development plans; changes in the securities markets; changes in consumer spending, borrowing and savings habits; the availability of capital from private or government sources; competition for loans and deposits and failure to attract or retain loans and deposits; changes in the financial performance and/or condition of our borrowers and the ability of our borrowers to perform under the terms of their loans and terms of other credit agreements; political instability, acts of war or terrorism and natural disasters; and additional “Risk Factors” referenced in the Company’s most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission, as supplemented from time to time. When relying on forward-looking statements to make decisions with respect to the Company, investors and others are cautioned to consider these and other risks and uncertainties. The Company can give no assurance that any goal or plan or expectation set forth in any forward-looking statement can be achieved and readers are cautioned not to place undue reliance on such statements, which speak only as of the date made. The forward-looking statements are made as of the date of this press release, and, except as may otherwise be required by law, the Company does not intend, and assumes no obligation, to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements.

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GUARANTY BANCORP AND SUBSIDIARIES

Unaudited Consolidated Balance Sheets

 

 

 

 

 

 

 

 

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GUARANTY BANCORP AND SUBSIDIARIES

Unaudited Consolidated Statements of Operations

 

 

 

 

 

 

 

 

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GUARANTY BANCORP AND SUBSIDIARIES

Unaudited Consolidated Average Balance Sheets

 

 

 

 

 

 

 

 

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