Guaranty Bancorp announces second consecutive quarter of record net income and the signing of a definitive agreement to acquire Castle Rock Bank Holding Company

Company Release - 7/19/2017 4:10 PM ET

DENVER, CO -- (Marketwired) -- 07/19/17 --

  • Increased quarterly net income by $4.4 million, or 78.1%, compared to the second quarter 2016
  • Expanded quarterly return on average assets to 1.19%, compared to 0.97% in the second quarter 2016
  • Continued improvement in quarterly efficiency ratio to 53.77%, compared to 59.08% in the second quarter 2016
  • Reduced the nonperforming asset to total asset ratio to 0.14%, compared to 0.58% in the second quarter 2016

Guaranty Bancorp (NASDAQ: GBNK) ("we", "our" or "the Company"), a community bank holding company based in Colorado, today announced second quarter 2017 net income of $10.1 million, or $0.36 per basic and diluted common share, compared to $5.7 million, or $0.27 per basic and diluted common share in the second quarter 2016. For the six months ended June 30, 2017, net income was $20.0 million or $0.72 per basic common share and $0.71 per diluted common share, compared to $11.5 million, or $0.54 per basic and diluted common share for the same period in 2016.

Today, the Company announces the signing of a definitive purchase agreement with Castle Rock Bank Holding Company, the holding company for Castle Rock Bank, in an all-stock transaction. Castle Rock Bank, a 43 year old community bank based in Castle Rock, Colorado, has $147.8 million in total assets as of June 30, 2017 and two bank branches strategically located between Denver and Colorado Springs, Colorado. The deal is subject to normal regulatory approvals and customary closing conditions and is expected to close in the first quarter of 2018. Following the close of the transaction, Castle Rock Bank will be merged into Guaranty Bank and Trust and all Castle Rock Bank branches will operate under the Guaranty Bank and Trust name. The Company expects the transaction to be $0.04 accretive to earnings per share in 2018 and have an internal rate of return in excess of 19%. Further information regarding the transaction can be found in the investor presentation filed as an exhibit to Guaranty Bancorp's Form 8-K filed on July 19, 2017.

"Our quarterly net income growth, together with our expanded quarterly return on average assets, demonstrates the successful business strategies we have in place to enhance shareholder value," said Paul W. Taylor, President and Chief Executive Officer of Guaranty Bancorp.

Taylor continued, "In addition, our continued commitment to grow our bank through strategic acquisitions is demonstrated by the announcement of our intent to acquire Castle Rock Bank Holding Company. We are pleased to welcome a high quality franchise like Castle Rock Bank with their solid core deposit base and excess liquidity to the Guaranty Bank organization. This acquisition provides a fill-in opportunity within our Front Range footprint and strengthens our position as one of the premier community banks headquartered in Colorado with approximately $3.6 billion in pro forma assets. Castle Rock Bank customers will continue to enjoy the exceptional service and local decision-making that a community bank provides. Customers of Castle Rock Bank will also have more locations along the Front Range to transact their business and enhanced service offerings including an expanded suite of Wealth Management and Treasury Management solutions. The acquisition of Castle Rock Bank furthers our reach into Douglas County, Colorado, a rapidly growing community that ranks 4th in the nation for highest median household income among counties with populations of 65,000 or more, according to the 2015 American Community Survey."

Key Financial Measures

Income Statement

               
    Three Months Ended       Six Months Ended  
    June 30,     March 31,     June 30,       June 30,     June 30,  
    2017     2017     2016       2017     2016  
    (Dollars in thousands, except per share amounts)  
Net income $ 10,125   $ 9,840   $ 5,686     $ 19,965   $ 11,541  
Operating earnings(1)   10,232     9,832     6,049       20,064     12,287  
Earnings per common share - diluted   0.36     0.35     0.27       0.71     0.54  
Earnings per common share - diluted - operating(1)   0.36     0.35     0.28       0.71     0.57  
Return on average assets   1.19 %   1.18 %   0.97 %     1.19 %   0.98 %
Return on average assets - operating(1)   1.21 %   1.18 %   1.03 %     1.19 %   1.05 %
Return on average equity   11.13 %   11.17 %   10.03 %     11.15 %   10.26 %
Return on average equity - operating(1)   11.25 %   11.16 %   10.67 %     11.20 %   10.93 %
Net interest margin   3.74 %   3.65 %   3.57 %     3.69 %   3.58 %
Efficiency ratio - tax equivalent(2)   53.77 %   55.33 %   59.08 %     54.53 %   59.50 %
Average cost of interest-bearing liabilities (including noninterest-bearing deposits)   0.46 %   0.43 %   0.39 %     0.44 %   0.37 %
Average cost of deposits (including noninterest-bearing deposits)   0.26 %   0.23 %   0.23 %     0.25 %   0.23 %
________________________                                

(1)  See reconciliation of non-GAAP financial measures to the corresponding GAAP measurement in "Non-GAAP Financial Measures" later in this document.

(2)  The efficiency ratio equals noninterest expense adjusted to exclude amortization of intangible assets, prepayment penalties on long-term debt, impairment of long-lived assets and merger related expenses, 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 have been adjusted to reflect the amount that would have been earned had these investments been subject to normal income taxation.

Balance Sheet

                                       
    June 30,       March 31,       December 31,       September 30,       June 30,  
    2017       2017       2016       2016       2016  
    (Dollars in thousands, except per share amounts)
Total investments $ 569,812     $ 584,746     $ 590,856     $ 562,091     $ 369,008  
Total loans, net of deferred costs and fees   2,578,472       2,570,750       2,519,138       2,412,999       1,898,543  
Allowance for loan losses   (23,125)       (23,175)       (23,250)       (23,300)       (23,050)  
Total assets   3,403,852       3,399,651       3,366,427       3,346,265       2,395,015  
Total deposits   2,763,623       2,765,630       2,699,084       2,752,112       1,847,361  
Book value per common share   12.94       12.64       12.44       12.39       10.55  
Tangible book value per common share(1)   10.46       10.13       9.91       9.85       10.33  
Equity ratio - GAAP   10.80 %     10.56 %     10.47 %     10.50 %     9.60 %
Tangible common equity ratio(1)   8.91 %     8.65 %     8.52 %     8.53 %     9.42 %
Total risk-based capital ratio   13.65 %     13.44 %     13.58 %     14.07 %     13.34 %
________________________                                      

(1) See reconciliation of non-GAAP financial measures to the corresponding GAAP measurement in "Non-GAAP Financial Measures" later in this document.

Net Interest Income and Margin

The following tables present, for the periods indicated, average assets, liabilities and stockholders' equity, as well as interest income from average interest-earning assets, interest expense from average interest-bearing liabilities and the resultant yields and costs expressed in percentages. Nonaccrual loans are included in the calculation of average loans and leases, while interest thereon is excluded from the computation of yield earned.

                 
  Three Months Ended     Three Months Ended     Three Months Ended  
    June 30, 2017       March 31, 2017       June 30, 2016  
    Average Balance     Interest
Income
or
Expens
  Average
Yield or
Cost
      Average Balance   Interest
Income
or
Expense
  Average
Yield or
Cost
      Average Balance   Interest
Income
or
Expense
Average
Yield or
Cost
 
                                               
    (Dollars in thousands)  
ASSETS:                                              
Interest-earning assets:                                              
  Gross loans, net of deferred costs and fees(1)(3) $ 2,581,043   $ 28,976   4.50 %   $ 2,540,421 $ 27,392   4.37 %   $ 1,845,337 $ 19,057 4.15 %
  Investment securities(1)                                              
    Taxable   354,230     2,356   2.67 %     361,799   2,315   2.59 %     271,891   1,753 2.59 %
    Tax-exempt   201,893     1,243   2.47 %     202,094   1,237   2.48 %     94,397   757 3.23 %
  Bank Stocks(4)   23,531     347   5.91 %     24,237   389   6.51 %     20,165   281 5.60 %
  Other earning assets   4,549     11   0.97 %     4,097   8   0.79 %     2,822   3 0.43 %
  Total interest-earning assets   3,165,246     32,933   4.17 %     3,132,648   31,341   4.06 %     2,234,612   21,851 3.93 %
Non-earning assets:                                              
  Cash and due from banks   34,714                 35,533               24,754        
  Other assets   204,149                 205,972               97,598        
Total assets $ 3,404,109               $ 3,374,153             $ 2,356,964        
                                               
LIABILITIES AND STOCKHOLDERS' EQUITY:                                          
Interest-bearing liabilities:                                              
  Deposits:                                              
    Interest-bearing demand and NOW $ 807,883   $ 354   0.18 %   $ 772,880 $ 357   0.19 %   $ 378,438 $ 95 0.10 %
    Money market   479,009     402   0.34 %     490,430   333   0.28 %     398,209   266 0.27 %
    Savings   179,862     49   0.11 %     171,738   47   0.11 %     151,507   41 0.11 %
    Time certificates of deposit   414,533     981   0.95 %     374,065   800   0.87 %     284,178   662 0.94 %
    Total interest-bearing deposits   1,881,287     1,786   0.38 %     1,809,113   1,537   0.34 %     1,212,332   1,064 0.35 %
  Borrowings:                                              
    Repurchase agreements   31,794     15   0.19 %     36,466   17   0.19 %     19,477   8 0.17 %
    Federal funds purchased   1     -   1.46 %     1   -   1.46 %     3   - 0.98 %
    Subordinated debentures   65,014     856   5.28 %     64,993   844   5.27 %     25,774   225 3.51 %
    Borrowings   182,617     777   1.71 %     210,680   771   1.48 %     242,633   733 1.22 %
    Total interest-bearing liabilities   2,160,713     3,434   0.64 %     2,121,253   3,169   0.61 %     1,500,219   2,030 0.54 %
Noninterest bearing liabilities:                                              
  Demand deposits   864,359                 880,231               616,046        
  Other liabilities   14,078                 15,381               12,639        
  Total liabilities   3,039,150                 3,016,865               2,128,904        
Stockholders' Equity   364,959                 357,288               228,060        
Total liabilities and stockholders' equity $ 3,404,109               $ 3,374,153             $ 2,356,964        
                                               
Net interest income       $ 29,499             $ 28,172             $ 19,821    
Net interest margin             3.74 %             3.65 %           3.57 %
Net interest margin, fully tax equivalent(2)             3.85 %             3.76 %           3.65 %
                                               

(1) Yields on loans and securities have not been adjusted to a tax-equivalent basis.
(2) The tax-equivalent basis was computed by calculating the deemed interest on municipal bonds and tax-exempt loans that would have been earned on a fully taxable basis to yield the same after-tax income, net of the interest expense disallowance under Internal Revenue Code Sections 265 and 291, using a combined federal and state marginal tax rate of 38.01%.
(3) The loan average balances and rates include nonaccrual loans.
(4) Includes Bankers' Bank of the West stock, Federal Reserve Bank stock, Federal Home Loan Bank stock and Pacific Coast Bankers' Bank stock.

Net Interest Income and Margin (continued)

             
    Six Months Ended     Six Months Ended  
      June 30, 2017       June 30, 2016  
      Average
Balance
    Interest
Income
or
Expense
Average Yield or Cost       Average
Balance
    Interest
Income
or
Expense
Average Yield or Cost  
      (Dollars in thousands)  
ASSETS:                                
Interest-earning assets:                                
  Gross loans, net of deferred costs and fees(1)(3)   $ 2,560,845   $ 56,368 4.44 %   $ 1,831,669   $ 37,911 4.16 %
  Investment securities(1)                                
    Taxable     357,993     4,671 2.63 %     286,747     3,713 2.60 %
    Tax-exempt     201,993     2,480 2.48 %     92,663     1,488 3.23 %
  Bank Stocks(4)     23,883     736 6.21 %     20,533     592 5.80 %
  Other earning assets     4,324     19 0.89 %     2,817     7 0.50 %
  Total interest-earning assets     3,149,038     64,274 4.12 %     2,234,429     43,711 3.93 %
Non-earning assets:                                
  Cash and due from banks     35,121               24,868          
  Other assets     205,053               98,762          
Total assets   $ 3,389,212             $ 2,358,059          
                                 
LIABILITIES AND STOCKHOLDERS' EQUITY:                          
Interest-bearing liabilities:                                
  Deposits:                                
    Interest-bearing demand and NOW   $ 790,478   $ 712 0.18 %   $ 378,107   $ 186 0.10 %
    Money market     484,688     735 0.31 %     400,109     525 0.26 %
    Savings     175,823     96 0.11 %     152,180     83 0.11 %
    Time certificates of deposit     394,410     1,780 0.91 %     279,271     1,277 0.92 %
    Total interest-bearing deposits     1,845,399     3,323 0.36 %     1,209,667     2,071 0.34 %
  Borrowings:                                
    Repurchase agreements     34,117     32 0.19 %     20,207     18 0.18 %
    Federal funds purchased     1     - 1.46 %     2     - 0.98 %
    Subordinated debentures     65,004     1,700 5.27 %     25,774     450 3.51 %
    Borrowings     196,570     1,548 1.59 %     249,825     1,356 1.09 %
    Total interest-bearing liabilities     2,141,091     6,603 0.62 %     1,505,475     3,895 0.52 %
Noninterest bearing liabilities:                                
  Demand deposits     872,251               613,891          
  Other liabilities     14,725               12,573          
  Total liabilities     3,028,067               2,131,939          
Stockholders' Equity     361,145               226,120          
Total liabilities and stockholders' equity   $ 3,389,212             $ 2,358,059          
                                 
Net interest income         $ 57,671             $ 39,816    
Net interest margin             3.69 %             3.58 %
Net interest margin, fully tax equivalent (2)             3.80 %             3.66 %
                                 

(1) Yields on loans and securities have not been adjusted to a tax-equivalent basis.
(2) The tax-equivalent basis was computed by calculating the deemed interest on municipal bonds and tax-exempt loans that would have been earned on a fully taxable basis to yield the same after-tax income, net of the interest expense disallowance under Internal Revenue Code Sections 265 and 291, using a combined federal and state marginal tax rate of 38.01%.
(3) The loan average balances and rates include nonaccrual loans.
(4) Includes Bankers' Bank of the West stock, Federal Reserve Bank stock, Federal Home Loan Bank stock and Pacific Coast Bankers' Bank stock.

Net Interest Income and Margin (continued)

During the second quarter 2017, our net interest margin increased to 3.74%, compared to 3.57% for the second quarter 2016 and 3.65% for the first quarter 2017. The yield on average earnings assets increased to 4.17% for the second quarter 2017, compared to 3.93% for the second quarter 2016 and 4.06% for the first quarter 2017. Beginning in the third quarter 2016, net interest margin and loan yield were favorably impacted by the accretion of the discount on loans acquired in the Home State transaction. Accretion on acquired loans increased to $1.2 million in the second quarter 2017, compared to $0.8 million in the first quarter 2017. Second quarter 2017 interest income included $0.9 million of accreted discount on loans paid off during the quarter. The cost of interest-bearing liabilities increased to 0.64% for the second quarter 2017, compared to 0.54% for the second quarter 2016 and 0.61% for the first quarter 2017. The July 2016 issuance of $40.0 million of unsecured fixed-to-floating rate subordinated notes, bearing an initial interest rate of 5.75% through July 2021, was a primary driver of the increase in the average cost of interest-bearing liabilities.

Net interest income increased $9.7 million, or 48.8% in the second quarter 2017, compared to the same quarter in 2016, and increased $1.3 million, or 4.7%, compared to the first quarter 2017. The increase in net interest income was driven by an increase in average earning assets and the accretion of the discount on loans acquired in the acquisition of Home State Bancorp, partially offset by an increase in average interest-bearing liabilities.

For the six months ended June 30, 2017, net interest income increased $17.9 million, compared to the same period in 2016, primarily due to a $914.6 million, or 40.9% increase in average earning assets, partially offset by a $635.6 million, or 42.2% increase in average interest bearing liabilities. Accretion of discount on acquired loans was $2.0 million during the six months ended June 30, 2017. There was no accretion of discount on acquired loans in the six months ended June 30, 2016. The Company acquired $445.5 million in loans and $769.7 million in deposits as a result of the September 2016 Home State transaction.

Noninterest Income

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

             
      Three Months Ended     Six Months Ended
      June 30,
2017
    March 31,
2017
    June 30,
2016
    June 30,
2017
    June 30,
2016
      (In thousands)
Noninterest income:                              
  Deposit service and other fees   $ 3,545   $ 3,280   $ 2,292   $ 6,825   $ 4,461
  Investment management and trust     1,483     1,521     1,276     3,004     2,556
  Increase in cash surrender value of life insurance     615     595     460     1,210     908
  Loss on sale of securities     -     -     (101)     -     (56)
  Gain on sale of SBA loans     447     381     110     828     264
  Other     252     625     105     877     187
  Total noninterest income   $ 6,342   $ 6,402   $ 4,142   $ 12,744   $ 8,320
                                 

Beginning in the third quarter 2016, noninterest income was favorably impacted by the Home State transaction, affecting deposit service and other fees, investment management and trust and merchant income; included in "other" in the table above.

Noninterest income increased $2.2 million, or 53.1% in the second quarter 2017, compared to the same quarter in 2016 and decreased $0.1 million, compared to the first quarter 2017. Second quarter 2017 deposit service and other fees increased $0.3 million, compared to the first quarter 2017, primarily due to an increase in debit card interchange income and an increase in annual fees on overdraft protection accounts. First quarter 2017 noninterest income included a $0.3 million gain on sale of our $2.0 million credit card loan portfolio.

For the six months ended June 30, 2017, noninterest income increased $4.4 million, or 53.2%, compared to the same period in 2016. In addition to the impact of the Home State transaction, gain on sale of SBA loans increased $0.6 million and bank-owned life insurance increased $0.3 million for the six months ended June 30, 2017, compared to the same period in 2016.

Noninterest Expense

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

             
      Three Months Ended     Six Months Ended
      June 30,
2017
    March 31,
2017
    June 30,
2016
    June 30,
2017
    June 30,
2016
      (In thousands)
Noninterest expense:                              
  Salaries and employee benefits   $ 11,247   $ 11,926   $ 8,520   $ 23,173   $ 17,308
  Occupancy expense     1,674     1,552     1,261     3,226     2,636
  Furniture and equipment     975     945     713     1,920     1,531
  Amortization of intangible assets     648     649     239     1,297     479
  Other real estate owned, net     126     68     5     194     7
  Insurance and assessments     647     706     597     1,353     1,210
  Professional fees     1,252     974     906     2,226     1,763
  Impairment of long-lived assets     34     190     -     224     -
  Other general and administrative     3,900     3,519     2,893     7,419     5,992
  Total noninterest expense   $ 20,503   $ 20,529   $ 15,134   $ 41,032   $ 30,926
                                 

Beginning in the third quarter 2016, noninterest expense was significantly impacted by the Home State transaction, primarily affecting salaries and employee benefits, other general and administrative, amortization of intangible assets and occupancy.

Salaries and employee benefits increased $2.7 million in the second quarter 2017, compared to the same quarter in 2016, primarily due to a $1.8 million increase in base salaries and a $0.5 million increase in our self-funded medical plan. Since June 30, 2016, our full-time equivalent employees (FTE) increased by 128 FTE to 491 FTE at June 30, 2017. Other general and administrative expenses increased $1.0 million in the second quarter 2017, compared to the same quarter in 2016, primarily due to increases in data processing and debit card interchange expense.

Salaries and employee benefits decreased $0.7 million in the second quarter 2017, compared to the first quarter 2017, mostly due to a decline in payroll taxes related to the timing of the annual payroll cycle. Offsetting the decline in salaries and employee benefits, other general and administrative expense increased $0.4 million and professional fees increased $0.3 million in the second quarter 2017, compared to the first quarter 2017. The increase in general and administrative expense in the second quarter 2017, compared to the first quarter 2017, was related to increases in data processing expense and security expense. The increase in professional fees in the second quarter 2017, compared to the first quarter 2017, was mostly related to increases to legal and miscellaneous professional fees.

For the six months ended June 30, 2017, noninterest expense increased $10.1 million, compared to the same period in 2016, primarily due to the impact of the Home State transaction. Salaries and employee benefits increased $5.9 million for the six months ended June 30, 2017, compared to the same period in 2016, primarily due to a $3.8 million increase in base salary expense and a $1.2 million increase in our self-funded medical plan. Other general and administrative expense increased $1.4 million for the six months ended June 30, 2017, compared to the same period in 2016, due to increases in data processing, debit card interchange expense and communication expense. Amortization of intangible assets increased $0.8 million for the six months ended June 30, 2017, compared to the same period in 2016, due to the intangible assets recorded in the Home State transaction. Occupancy expense increased $0.6 million for the six months ended June 30, 2017, compared to the same period in 2016, due to increases in real estate taxes and depreciation. As a result of the Home State transaction, we acquired eleven branches and closed five branches by the end of 2016.

Balance Sheet

                                       
    June 30,       March 31,       December 31,       September 30,       June 30,  
    2017       2017       2016       2016       2016  
    (Dollars in thousands)
Total assets $ 3,403,852     $ 3,399,651     $ 3,366,427     $ 3,346,265     $ 2,395,015  
Average assets, quarter-to-date   3,404,109       3,374,153       3,336,143       2,613,133       2,356,964  
Total loans, net of deferred costs and fees   2,578,472       2,570,750       2,519,138       2,412,999       1,898,543  
Total deposits   2,763,623       2,765,630       2,699,084       2,752,112       1,847,361  
                                       
Equity ratio - GAAP   10.80 %     10.56 %     10.47 %     10.50 %     9.60 %
Tangible common equity ratio   8.91 %     8.65 %     8.52 %     8.53 %     9.42 %
                                       

Second quarter 2017 average assets were $3.4 billion, reflecting an increase of $1.0 billion compared to June 30, 2016, and an increase of $30.0 million compared to March 31, 2017. During the third quarter 2016, the Company acquired $445.5 million in loans and $769.7 million in deposits in the Home State transaction.

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

                             
    June 30,     March 31,     December 31,     September 30,     June 30,
    2017     2017     2016     2016     2016
    (In thousands)
Loans held for sale $ 887   $ 951   $ 4,129   $ -   $ -
Commercial and residential real estate   1,799,114     1,800,194     1,768,424     1,752,113     1,428,397
Construction   99,632     103,682     88,451     75,603     26,497
Commercial   451,701     451,708     432,083     400,281     336,069
Consumer   122,994     120,231     125,264     81,766     66,539
Other   103,990     93,979     100,848     102,887     40,640
  Total gross loans   2,578,318     2,570,745     2,519,199     2,412,650     1,898,142
    Deferred costs and (fees)   154     5     (61)     349     401
  Loans, net   2,578,472     2,570,750     2,519,138     2,412,999     1,898,543
Less allowance for loan losses   (23,125)     (23,175)     (23,250)     (23,300)     (23,050)
  Net loans $ 2,555,347   $ 2,547,575   $ 2,495,888   $ 2,389,699   $ 1,875,493
                               

The following table presents the changes in the Company's loan balances at the dates indicated:

                                   
    June 30,     March 31,     December 31,     September 30,     June 30,     March 31,
    2017     2017     2016     2016     2016     2016
    (In thousands)
Beginning balance $ 2,570,745   $ 2,519,199   $ 2,412,650   $ 1,898,142   $ 1,829,909     1,814,281
New credit extended   132,420     139,185     232,499     129,064     121,753     105,843
Acquisition of Home State Bank   -     -     -     445,529     -     -
Net existing credit advanced   73,298     111,821     142,448     153,390     87,524     50,482
Net pay-downs and maturities   (196,511)     (195,678)     (272,326)     (214,089)     (142,516)     (139,914)
Other   (1,634)     (3,782)     3,928     614     1,472     (783)
  Gross loans   2,578,318     2,570,745     2,519,199     2,412,650     1,898,142     1,829,909
Deferred costs and (fees)   154     5     (61)     349     401     337
  Loans, net $ 2,578,472   $ 2,570,750   $ 2,519,138   $ 2,412,999   $ 1,898,543     1,830,246
                                   
Net change - loans outstanding $ 7,722   $ 51,612   $ 106,139   $ 514,456   $ 68,297     15,710