FOR IMMEDIATE RELEASE:

Guaranty Bancorp Announces 2014 Annual and Fourth Quarter Financial Results

 

DENVER, January 21, 2015 - Guaranty Bancorp (Nasdaq: GBNK) (“we”, “our” or “the Company”), a community bank holding company based in Colorado, today announced fourth quarter 2014 net income of $1.2 million or $0.06 per basic and diluted common share as compared to $4.1 million or $0.20 per basic common share and $0.19 per diluted common share in fourth quarter 2013. The Company’s net income for the fourth quarter 2014 included a $5.5 million prepayment penalty, net of a $2.1 million tax benefit related to the prepayment of $90.0 million in Federal Home Loan Bank (FHLB) term advances. Net income for the fourth quarter 2014 would have been $4.6 million or $0.22 per basic and diluted common share excluding the net FHLB prepayment penalty. Fourth quarter 2014 return on average assets (ROAA) was 0.23% as compared to 0.88% excluding the net FHLB prepayment penalty.

 

“Our experienced team of local bankers once again delivered exceptional results with net loan growth of 16.7% and core deposit growth of 10.8% during 2014,” said Paul W. Taylor, President and CEO. “In addition to these significant accomplishments, we continue to improve our key core operating metrics across all lines of business. Our noninterest income grew 21%, from $13.8 million in 2013 to $16.7 million in 2014. We also improved our net interest margin by four basis points to 3.66% during 2014, despite competitive and economic pressures.”

 

Mr. Taylor added, “At the end of the fourth quarter 2014, we made the strategic decision to prepay $90 million in FHLB term advances with a weighted average rate of 3.07%. We expect that the prepayment will reduce our net interest expense by as much as $2.5 million annually for 2015 through 2017. The prepayment is also expected to improve our profitability ratios including net interest margin, earnings per share, return on average equity and ROAA, among others.”

 

The Company’s pre-tax operating earnings  (1) for the fourth quarter 2014 were $7.2 million or $0.34 per basic and diluted common share, an increase of $2.0 million or $0.09 per basic and diluted common share as compared to the same quarter in 2013. The $2.0 million increase in pre-tax operating earnings in the fourth quarter 2014 as compared to the same quarter in the prior year was primarily driven by a $1.3 million improvement in interest income, attributable to growth in average loan balances of $179.9 million and a $1.4 million, or 40.0% increase in noninterest income, primarily due to increases in investment management and trust income and gains on the sale of SBA loans.

 

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For the year ended December 31, 2014, the Company’s net income was $13.5 million or $0.64 per basic and diluted common share as compared to $14.0 million, or $0.67 per basic and diluted common share in the prior year. Net income for 2014 would have been $16.9 million or $0.81 per basic common share and $0.80 per diluted common share excluding the net FHLB prepayment penalty. The Company’s ROAA was 0.68% for the year ended December 31, 2014 as compared to 0.84% excluding the net FHLB prepayment penalty.

 

The Company’s pre-tax operating earnings for 2014 were $25.7 million or $1.23 per basic common share and $1.22 per diluted common share, an increase of $5.6 million or $0.26 per basic and diluted common share as compared to the prior year.  The $5.6 million increase in pre-tax operating earnings for the year ended December 31, 2014 as compared to the prior year was mostly due to a $4.9 million increase in interest income, driven by growth in average loan balances of 14.7%, combined with a $2.9 million increase in noninterest income. 

 

Key Financial Measures

Income Statement

 

 

 

 

(1) The “efficiency ratio” equals noninterest expenses adjusted to exclude amortization of intangible assets, prepayment penalties on long-term debt and impairment of long-lived assets divided by the sum of tax equivalent net interest income and tax equivalent noninterest income. To calculate tax equivalent net interest income and noninterest income, the interest earned on tax exempt loans and investment securities and the income earned on bank-owned life insurance has been adjusted to reflect the amount that would have been earned had these investments been subject to normal income taxation.

 

Balance Sheet

 

 

 

 

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Net Interest Income and Margin

 

 

 

Net interest income improved $1.3 million to $17.7 million in the fourth quarter 2014 as compared to the same quarter in 2013 due to a $1.3 million increase in interest income primarily driven by a 13.8% increase in average loan balances. Interest expense remained relatively flat in the fourth quarter 2014 as compared to the same quarter in the prior year despite an $81.1 million increase in average interest bearing deposits. 

 

During the fourth quarter 2014, net interest margin decreased by six basis points to 3.61% as compared to the third quarter 2014 and decreased four basis points as compared to the fourth quarter 2013. These decreases in net interest margin were primarily the result of a decrease in loan yield, due to competitive and economic pressures, partially offset by a change in the mix of average earning assets, primarily due to an increase in average loan balances. Fourth quarter 2014 loan yield declined six basis points to 4.37%, as compared to third quarter 2014 and declined 13 basis points as compared to fourth quarter 2013.

 

Net interest income improved by $5.2 million for the year ended December 31, 2014 to $68.8 million compared to $63.6 million during 2013. The increase in net interest income was the result of a $4.9 million increase in interest income combined with a $0.4 million decline in interest expense. The increase in interest income was driven by a $181.8 million increase in average loan balances for the year ended December 31, 2014 as compared to the prior year. The decrease in interest expense during 2014 as compared to the prior year 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 interest bearing deposits. The prepayment of $90.0 million in FHLB term advances with a weighted average rate of 3.07% during the fourth quarter 2014 is expected to have a favorable impact on both net interest income and net interest margin in 2015. 

 

On a year-over-year basis, the 2014 net interest margin increased four basis points to 3.66% as compared to 3.62% for the prior year, 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. 

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Noninterest Income

 

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

 

 

 

 

Fourth quarter 2014 noninterest income increased $0.5 million to $4.9 million as compared to $4.3 million in the third quarter 2014 and increased $1.4 million from $3.5 million in the fourth quarter 2013.

 

The $0.5 million increase in noninterest income in the fourth quarter 2014 as compared to the third quarter 2014 was mostly due to a $0.3 million increase in gains on sale of SBA loans. As compared to the fourth quarter 2013, noninterest income increased $1.4 million primarily due to a $0.4 million increase in investment management and trust income, a $0.4 million increase in gains on sale of SBA loans and a $0.1 million increase in cash surrender value of bank-owned life insurance (BOLI).

 

Total assets under management at December 31, 2014 were $683.1 million, an increase of $220.2 million, or 47.6% as compared to December 31, 2013. During the third quarter 2014, the Company acquired Cherry Hills Investment Advisors which had assets under management of $178.5 million at July 16, 2014.

 

For the year ended December 31, 2014, noninterest income increased $2.9 million as compared to the prior year. This increase in noninterest income included a $1.5 million increase in investment management and trust income, as a result of an increase in fee income generated by the Company’s subsidiary, Private Capital Management as well as fee income generated from the Company’s recent acquisition of Cherry Hills Investment Advisors. Other categories of noninterest income contributing to the increase included a $0.3 million increase in customer interest rate swap income, a $0.3 million increase in BOLI, and a $0.2 million increase in deposit service fees.

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Noninterest Expense

 

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

 

 

 

 

 

The FHLB prepayment penalty was the primary cause for the increase of $5.9 million in noninterest expense during the fourth quarter 2014 as compared to the third quarter 2014. Salaries and employee benefits increased $0.3 million during the fourth quarter 2014 as compared to the third quarter 2014 mostly due to a $0.2 million increase in our self-funded medical insurance plan and $0.1 million in incentive compensation. As compared to the fourth quarter 2013, noninterest expense increased $7.4 million, consisting of the $5.5 million prepayment penalty on FHLB term advances, a $1.2 million increase in other real estate owned (OREO) expenses mostly related to a gain on sale of OREO recognized in the fourth quarter 2013 and a $0.7 million increase in salaries and employee benefits. The increase in salaries and employee benefits was mostly due to a $0.4 million increase in salaries and a $0.2 million reduction in equity compensation expense in the fourth quarter 2013 related to an adjustment to the expected vesting of certain performance shares.

 

Noninterest expense in 2014 was $65.7 million as compared to $56.7 million for 2013. Exclusive of the FHLB prepayment penalty and the $0.6 million prepayment penalty incurred in 2013 related to the early redemption of $15.0 million in the Company’s trust preferred securities, other categories of noninterest expense increased by $4.2 million. These increases include a $3.2 million increase in salaries and employee benefits and a $1.5 million increase in OREO expense. The increase in salaries and employee benefits was comprised of a  $1.5 million increase in salaries, a $1.3 million increase in equity compensation and a $0.4 million increase in costs related to our self-funded medical insurance plan.  The increase in salaries was impacted by an increase of eleven full-time equivalent employees during 2014. The increase in equity compensation during 2014 was primarily related to additional shares granted early in 2014. The increase in OREO expense was mostly related to higher net gains on sale of OREO during 2013.

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Balance Sheet

 

 

 

 

 

At December 31, 2014, the Company had total assets of $2.1 billion, reflecting a $46.8 million increase compared to September 30, 2014 and a $213.7 million increase compared to December 31, 2013. The increase in total assets during the year ended December 31, 2014 includes a $221.0 million, or 16.7% increase in loans. The loan growth was funded by a $156.9 million increase in deposits and a $39.5 million increase in repurchase agreements and borrowings.

 

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

 

 

During the fourth quarter 2014, loans increased $59.2 million, comprised of a $48.1 million increase in commercial and residential real estate and a $37.5 million increase in commercial loans, partially offset by a $23.2 million decline in construction loans. Fourth quarter 2014 net loan growth consisted of $178.5 million in new loans and new advances on existing loans, partially offset by $119.9 million in loan maturities, early payoffs and pay-downs. Commercial and residential real estate growth was comprised mostly of loans to finance the acquisition and development of mixed-use retail and office, industrial and multi-family commercial properties in Colorado. 

 

For the year ended December 31, 2014, loans net of unearned fees increased by $221.0 million, or 16.7%. Net loan growth was comprised of a $182.8 million increase in commercial and residential real estate loans and a $52.2 million increase in commercial loans. The growth in loans was both the result of development of new customer relationships and growth in existing customer relationships. The utilization rate on commercial lines of credit was 41.0% at December 31, 2014 as compared to 41.0% at September 30, 2014 and 39.5% at December 31, 2013. At December 31, 2014, 1-4 family residential real estate loans were $262.7 million as compared to $222.4 million at December 31, 2013.

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

 

 

 

Non-maturing deposits increased $23.9 million in the fourth quarter 2014 as compared to the third quarter 2014, and increased $145.1 million, or 10.8%, as compared to the fourth quarter 2013. At December 31, 2014, noninterest bearing deposits as a percentage of total deposits was 38.8% as compared to 37.2% at September 30, 2014 and 36.9% at December 31, 2013.

 

During the fourth quarter 2014, securities sold under agreements to repurchase increased by $9.8 million compared to September 30, 2014 and increased by $9.2 million compared to December 31, 2013.

 

Total FHLB borrowings were $160.3 million at December 31, 2014 consisting of $140.3 million of overnight advances on our line of credit and a  $20.0 million term note. At December 31, 2013, total FHLB borrowings consisted of $20.0 million in overnight advances and $110.0 million in term advances. As previously discussed, the Company prepaid $90.0 million in FHLB term advances during the fourth quarter 2014.

 

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 total risk-based capital ratios, Tier 1 risk-based capital ratios and leverage ratios from December 31, 2013 to December  31, 2014 were primarily attributable to loan growth during 2014. The Company 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 fourth quarter 2014, nonperforming assets decreased $2.0 million from September 30, 2014 and decreased $5.2 million from December 31, 2013. Nonperforming loans at December 31, 2014 and December 31, 2013 include one out-of-state loan participation with a balance of $9.9 million.

 

At December 31, 2014, classified assets represent 11.1% of bank-level Tier 1  Risk-based Capital plus allowance for loan losses compared to 13.4% at September 30, 2014 and 12.7% at December 31, 2013. The decrease in this ratio during the fourth quarter 2014 was primarily the result of a $4.0 million decrease in classified loans and a $1.4 million decrease in OREO combined with an increase in bank-level Tier-1 Capital plus allowance for loan losses.

 

Net recoveries in the fourth quarter 2014 were $0.1 million as compared to net recoveries of $0.2 million in the third quarter 2014 and net recoveries of $0.4 million in the fourth quarter 2013. The coverage ratio, defined as allowance for loan losses divided by nonperforming loans, increased favorably from 168.8% at September 30, 2014 to 178.2% at December 31, 2014. The increase in the coverage ratio reflects a $0.6 million reduction in nonperforming loans during the fourth quarter 2014 in addition to the $0.1 million increase in the allowance for loan losses during the quarter.

 

During the quarters ended December 31, 2014 and September 30, 2014 the Company recorded immaterial credit provisions for loan losses compared to a $0.2 million provision in the fourth quarter 2013. The Company considered recoveries, improvement in nonperforming loans, as well as loan growth 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 December 31, 2014, the Company had 21,628,873 shares of common stock outstanding, consisting of 20,609,873 shares of voting common stock, of which 620,075 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, impairments of long-lived assets, 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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The following non-GAAP schedules reconciles the following GAAP measures to net income, earnings per share and ROAA excluding the net FHLB prepayment penalty for the fourth quarter 2014 and year-to-date 2014 periods.

 

 

 

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About Guaranty Bancorp

 

Guaranty Bancorp is a $2.1 billion financial services company that operates as the bank holding company for Guaranty Bank and Trust Company, a premier Colorado community bank. The Bank provides comprehensive financial solutions to consumers and small to medium-sized businesses that value local and personalized service. In addition to loans and depository services, the Bank also offers wealth management solutions, including trust and investment management 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, including the impact of global and national economic conditions on our local economy; 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; failure to recognize expected cost savings; 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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