Guaranty Bancorp Announces 2014 Second Quarter Financial Results

• Expansion of investment management offering with the acquisition of Cherry Hills Investment Advisors
• Net income increased 15.3% in the second quarter 2014 as compared to the first quarter 2014
• Net loans grew 22.3% on an annualized basis during the second quarter 2014
• Net commercial loans grew 26.1% on an annualized basis during the second quarter 2014

DENVER, July 23, 2014 (GLOBE NEWSWIRE) -- Guaranty Bancorp (Nasdaq:GBNK) ("we", "our" or "the Company"), a community bank holding company based in Colorado, today announced second quarter 2014 net income of $4.1 million or $0.19 per basic and diluted common share, an increase of $0.3 million or $0.01 per basic and diluted common share as compared to the same quarter in 2013. The Company's pre-tax operating earnings⁽¹⁾ in the second quarter 2014 were $6.1 million or $0.29 per basic and diluted common share, an increase of $0.9 million or $0.04 per basic and diluted common share as compared to the same quarter in 2013.

The $0.9 million increase in pre-tax operating earnings in the second quarter 2014 as compared to the same quarter in the prior year was primarily due to a $1.3 million improvement in interest income, attributable to growth in average loan balances of $184.8 million, combined with a $0.3 million increase in investment management and trust income.

"We are pleased to have the expanded investment management offering that Cherry Hills Investment Advisors brings to our clients," said Paul W. Taylor, President and CEO. "The increase in fee income for the quarter was driven in part by the success of our Wealth Management group and with the addition of Cherry Hills Investment Advisors we expect this growth to continue. Since the acquisition of Private Capital Management in 2012, we have nearly doubled the assets under management, demonstrating the value clients place on local investment management expertise. With the acquisition, our combined assets under management total nearly $700 million."

"I am also pleased with the increase in net income of 15.3% in the second quarter of 2014 as compared to the first quarter and overall annualized loan growth of 22.3%. We continue to see strong momentum in the growth of our commercial and industrial loans. Our local and experienced bankers have been successful in developing new and expanding existing relationships as the Colorado economy continues to thrive."

For the six months ended June 30, 2014, net income was $7.6 million or $0.36 per basic and diluted common share, an increase of $1.5 million, or $0.07 per basic and diluted common share as compared to the same period in 2013. Pre-tax operating earnings were $11.4 million or $0.55 per basic and $0.54 per diluted common share for six month period ended June 30, 2014, an increase of $2.1 million or $0.10 per basic and $0.09 per diluted common share for the same period in 2013.

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(1) "Pre-tax operating earnings" is considered a "non-GAAP" financial measure, which we define as income before income taxes adjusted for (if any) provision (credit) for loan losses, other real estate owned expenses, debt termination expenses, acquisition, reorganization and integration costs, and securities gains and losses. More information regarding this measure and a reconciliation to the comparable GAAP measurement is provided under the heading Non-GAAP Financial Measures in this release.

The $2.1 million increase in pre-tax operating earnings for the six months ended June 30, 2014 as compared to the same period in the prior year was the result of a $1.8 million increase in interest income, mostly related to growth in average loan balances of $175.8 million combined with a $0.4 million decrease in interest expense primarily due to the early redemption of certain trust preferred securities ("TruPS") during the first quarter 2013.

Net interest income improved $1.3 million to $17.1 million in the second quarter 2014 as compared to the same quarter in 2013 due to an increase in interest income primarily driven by a $184.8 million, or 15.2% increase in average loan balances. Interest expense remained relatively flat in the second quarter 2014 as compared to the same quarter in the prior year despite a $35.7 million increase in average interest bearing deposits, primarily due to a two basis point decrease in the average cost of deposits. 

During the second quarter 2014, net interest margin increased by one basis point to 3.66% as compared to the same quarter in the prior year and decreased three basis points as compared to the first quarter 2014. The increase in net interest margin in the second quarter 2014 as compared to the second quarter in the prior year was primarily the result of a change in the mix of average earning assets primarily due to loan growth. The compression of the net interest margin in the second quarter 2014 as compared to the first quarter 2014 was driven by market pressure on loan rates combined with lower yields on investments, partially offset by a decrease in the average cost of deposits.

Net interest income improved by $2.2 million for the six months ended June 30, 2014 to $33.3 million compared to $31.1 million during the same period in 2013. The increase in net interest income was the result of a $1.8 million increase in interest income combined with a $0.4 million decline in interest expense. The increase in interest income was driven by a $175.8 million increase in average loan balances for the six months ended June 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 three basis point decline in the cost of deposits, despite a $49.6 million increase in average interest-bearing deposits.

Net interest margin increased three basis points to 3.67% for the six months ended June 30, 2014 as compared to 3.64% for the same period in 2013, primarily as the result of a change in the mix of average earnings assets mostly due to 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:

Second quarter 2014 noninterest income was $3.8 million as compared to $3.7 million in both the first quarter 2014 and second quarter 2013. 

The $0.1 million increase in noninterest income in the second quarter 2014 as compared to the first quarter 2014 was mostly due to $0.2 million increase in deposit service fee income and a $0.1 million increase in investment management and trust income, partially offset by a decline in gains on sale of SBA loans. As compared to the second quarter 2013, noninterest income increased $0.1 million primarily due to a $0.3 million increase in investment management and trust income, partially offset by a $0.3 million decrease in gains on sale of SBA loans.

During the second quarter 2014, assets under management increased by $10.0 million, or 8.1% annualized, to $505.3 million as compared to March 31, 2014. Assets under management increased by $98.1 million, or 24.1% during the twelve months ended June 30, 2014. The growth in assets under management was primarily related to the Company's investment management subsidiary, Private Capital Management reflecting new customer relationships as well as growth in existing relationships. We continue to invest in our Wealth Management group with the acquisition of Cherry Hills Investment Advisors announced on July 16, 2014. Cherry Hills Investment Advisors expands our total assets under management by approximately $178.5 million.

For the six months ended June 30, 2014, noninterest income increased $0.8 million as compared to the same period in 2013. This increase was the result of a $0.5 million increase in investment management and trust income, a $0.2 million increase in bank-owned life insurance income and a $0.2 million increase in customer interest rate swap income.

Noninterest Expense

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

Noninterest expense was $14.9 million in the second quarter 2014 as compared to $14.6 million in the first quarter 2014 and $13.9 million in the second quarter 2013. 

Second quarter 2014 noninterest expense increased $0.2 million as compared to the first quarter 2014, primarily due to a $0.1 million impairment recognized on a former branch held for sale combined with a $0.1 million increase in other general and administrative expense, mostly due to loan related expenses. Noninterest expense increased $1.0 million for the second quarter 2014 as compared to the same quarter in 2013, which was driven by a $0.3 million increase in salaries, a $0.3 million increase in equity compensation and a $0.2 million increase in incentive compensation.

Year-to-date 2014 noninterest expense was $29.5 million as compared to $29.1 million for the same period in 2013. Noninterest expense includes a $1.5 million increase in salary and employee benefit expense comprised of a $0.5 million increase in salaries, a $0.4 million increase in equity compensation and a $0.3 million increase costs related to our self-funded medical insurance plan. The increase in salaries and equity compensation for the first six months of 2014 as compared to the same period in the prior year was primarily due to the consistent achievement of key performance targets. Most other categories of noninterest expense decreased during the six months ended June 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.

At June 30, 2014, the Company had total assets of $2.0 billion, reflecting a $127.9 million increase compared to December 31, 2013 and a $172.8 million increase compared to June 30, 2013. The increase in total assets during the six months ended June 30, 2014 includes a $117.7 million increase in loans, a $23.4 million increase in investments and a $16.0 million increase in cash. These increases in assets were partially offset by a $21.9 million decline in securities sold or called, not yet settled and a $4.2 million decrease in other assets.

As compared to June 30, 2013 total assets reflects an increase in net loans of $197.5 million, or 15.9% and a $13.5 million increase in cash, partially offset by a $19.3 million decrease in investments.

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

During the three months ended June 30, 2014, loans net of unearned fees increased by $75.8 million. The increase in loans during the second quarter 2014 was primarily due to a $45.0 million increase in commercial and residential real estate, an $18.8 million increase in commercial loans and a $10.5 million increase in construction loans. Commercial and residential real estate growth was comprised mostly of loans to finance the acquisition and development of single and multi-tenant commercial properties as well as $21.9 million in jumbo mortgage loans. Commercial loan growth during the second quarter consisted mostly of loans to businesses and business owners ranging from $1.0 million to $5.0 million. Loans held for sale at June 30, 2014 represents one performing SBA loan that is expected to be sold in the third quarter 2014.

As compared to June 30, 2013, loans net of unearned fees increased by $197.5 million, or 15.9%. The net loan growth was primarily comprised of a $161.9 million increase in commercial and residential real estate loans, including a $65.9 million increase in jumbo mortgage loans and a $37.6 million increase in commercial loans. The growth in loans was primarily the result of new customer relationships, utilization of existing lines of credit and declines in loan payoffs. The utilization rate on commercial lines of credit was 41.5% at June 30, 2014 as compared to 40.7% at March 31, 2014 and 39.9% at June 30, 2013.

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

Non-maturing deposits increased $12.6 million in the second quarter 2014 as compared to the first quarter 2014, and increased $101.8 million, or 8.1%, as compared to the second quarter 2013. At June 30, 2014, noninterest bearing deposits as a percentage of total deposits was 37.2% as compared to 37.4% at March 31, 2014 and 34.9% at June 30, 2013.

During the second quarter 2014, securities sold under agreements to repurchase decreased by $5.3 million compared to March 31, 2014 and decreased by $3.2 million compared to June 30, 2013.

Total Federal Home Loan Bank ("FHLB") borrowings were $230.7 million at June 30, 2014 consisting of $110.0 million of term notes and $120.7 million of overnight advances on our line of credit. The $100.7 million increase in overnight FHLB line of credit borrowings as compared to December 31, 2013 was primarily deployed to fund loan growth.

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 June 30, 2014 were primarily attributable to the loan growth during the first six 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.

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:

During the second quarter 2014, nonperforming assets decreased $0.8 million from March 31, 2014 and decreased by $7.7 million from June 30, 2013. Nonperforming loans at June 30, 2014 includes one out-of-state loan participation with a balance of $10.1 million. 

At June 30, 2014, classified assets represented 14.6% of bank-level Tier 1 Capital plus allowance for loan losses compared to 12.7% at December 31, 2013 and 16.5% at June 30, 2013. The increase in this ratio during the second quarter 2014 was primarily the result of an $8.7 million loan transferred to classified assets during the second quarter. As compared to the same quarter in the prior year, classified assets declined $1.6 million.  

Net recoveries in the second quarter 2014 were $0.6 million as compared to net recoveries of $0.6 million in the first quarter 2014 and net charge-offs of $3.8 million in the second quarter 2013. The coverage ratio, defined as allowance for loan losses divided by nonperforming loans, increased favorably from 147.6% at March 31, 2014 to 159.6% at June 30, 2014. The increase in the coverage ratio reflects a $0.7 million reduction in nonperforming loans during the quarter in addition to the $0.6 million increase in the allowance for loan losses during the second quarter 2014.

During the quarter ended June 30, 2014, the Company recorded an immaterial provision for loan losses compared to an immaterial credit provision in the first quarter 2014 and no provision in the second quarter 2013. The Company considered the $0.6 million in net recoveries received during the second quarter 2014 when determining the adequacy of the allowance for loan losses and the resulting loan loss provision recognized during the same quarter.

Shares Outstanding

As of June 30, 2014, the Company had 21,707,609 shares of common stock outstanding, consisting of 20,688,609 shares of voting common stock, of which 742,616 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, and 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.

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:

The following non-GAAP table reconciles the efficiency ratio and the adjusted tax equivalent efficiency ratio as of the dates indicated:
 

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 subsidiary 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.