Guaranty Bancorp Announces 2017 Annual and Fourth Quarter Financial Results

Company Release - 1/24/2018 4:10 PM ET
  • Increased 2017 net income by $13.9 million to $38.6 million, an increase of 56.2% compared to the prior year
  • Expanded net interest margin to 3.77% for the year ended December 31, 2017, compared to 3.60% in 2016
  • Increased loans $217.2 million, or 8.7% during 2017, excluding $71.1 million in loans acquired in the acquisition of Castle Rock Bank Holding Company
  • Successfully completed the integration of Castle Rock Bank Holding Company during the fourth quarter 2017

DENVER, Jan. 24, 2018 (GLOBE NEWSWIRE) -- Guaranty Bancorp (Nasdaq:GBNK) (“we”, “our” or “the Company”), a community bank holding company based in Colorado, today announced fourth quarter 2017 net income of $8.6 million, or $0.30 per basic and diluted common share, compared to $7.4 million, or $0.27 per basic common share and $0.26 per diluted common share, in the fourth quarter 2016. Fourth quarter 2017 earnings per common share was impacted by $3.3 million in merger-related expenses and a $1.0 million deferred tax asset write-down due to the change in the statutory federal corporate tax rate under the Tax Cuts and Jobs Act of 2017. Operating earnings per diluted common share was $0.41 for the fourth quarter 2017, compared to $0.34 per diluted common share in the fourth quarter 2016. For the year ended December 31, 2017, net income was $38.6 million or $1.38 per basic common share and $1.36 per diluted common share, compared to $24.7 million, or $1.06 per basic common share and $1.05 per diluted common share, in 2016.

“We are proud of our fourth quarter and year end results,” said Paul W. Taylor, President and Chief Executive Officer of Guaranty Bancorp. “We had record net income of $38.6 million for the year, an increase of 56.2% compared to the prior year. This record income was fueled by balance sheet growth, an expanded net interest margin and improved profitability.  Our successful integration of Castle Rock Bank in the fourth quarter of 2017 has positioned us well in Douglas County, Colorado, one of the fastest growing counties in the country. Along with our growth, we continue to deliver improved profitability, demonstrated by the increase in our 2017 GAAP return on average assets to 1.12% compared to 0.93% in 2016 and an increase in our 2017 operating return on average assets to 1.25% compared to 1.09% in 2016.”

Taylor continued, “I am also pleased to announce that on January 16, 2018, we acquired the assets of Wagner Wealth Management and have integrated them into our wholly owned subsidiary, Private Capital Management LLC. As a result, Private Capital Management LLC now has over $1.1 billion in assets under management. This acquisition further strengthens our wealth management strategy and desire to offer comprehensive financial solutions to our customers.”

_______________________________________________________
1 This press release contains certain 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. See the “Non-GAAP Financial Measures” section later in this press release for a definition of operating earnings and other non-GAAP measures. 

Key Financial Measures

The following tables highlight our key financial measures for 2017 and 2016. Significant year-over-year improvement reflects solid organic growth and improved efficiencies, further enhanced by the successful integration of Home State Bancorp (Home State) and Castle Rock Bank Holding Company (Castle Rock) following each acquisition in September 2016 and October 2017, respectively.

Income Statement 

                 
  Quarter Ended   Year Ended 
  December 31,  September 30,   December 31,   December 31,  December 31, 
  2017  2017  2016   2017  2016 
                 
  (Dollars in thousands, except per share amounts) 
Net income$ 8,605  $ 10,054  $ 7,421   $ 38,624  $ 24,727  
Operating earnings (1)  11,885    11,307    9,445     43,256    29,013  
Earnings per common share - diluted  0.30    0.36    0.26     1.36    1.05  
Earnings per common share - diluted - operating (1)  0.41    0.40    0.34     1.53    1.23  
Return on average assets  0.95 %  1.17 %  0.88 %   1.12 %  0.93 %
Return on average assets - operating (1)  1.31 %  1.31 %  1.13 %   1.25 %  1.09 %
Return on average equity  8.59 %  10.70 %  8.41 %   10.35 %  9.35 %
Return on average equity - operating (1)   11.86 %  12.03 %  10.70 %   11.59 %  10.97 %
Net interest margin  3.77 %  3.91 %  3.58 %   3.77 %  3.60 %
Efficiency ratio - tax equivalent (2)   49.79 %  50.02 %  55.13 %   52.13 %  57.46 %
Average cost of interest-bearing liabilities (including noninterest-bearing deposits)  0.44 %  0.44 %  0.40 %   0.44 %  0.40 %
Average cost of deposits (including noninterest-bearing deposits)  0.28 %  0.27 %  0.22 %   0.26 %  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, litigation-related settlements 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

                    
  December 31,   September 30,    June 30,    March 31,   December 31, 
  2017   2017   2017   2017   2016 
  (Dollars in thousands, except per share amounts)
Total investments$ 614,312   $ 576,459   $ 569,812   $ 584,746   $ 590,856  
Total loans, net of deferred fees and costs  2,807,388     2,661,866     2,578,472     2,570,750     2,519,138  
Allowance for loan losses  (23,250)    (22,900)    (23,125)    (23,175)    (23,250) 
Total assets  3,698,890     3,510,046     3,403,852     3,399,651     3,366,427  
Total deposits  2,941,627     2,898,060     2,763,623     2,765,630     2,699,084  
Book value per common share  13.86     13.21     12.94     12.64     12.44  
Tangible book value per common share (1)  11.13     10.75     10.46     10.13     9.91  
Equity ratio - GAAP  10.95 %   10.69 %   10.80 %   10.56 %   10.47 %
Tangible common equity ratio (1)  8.99 %   8.88 %   8.91 %   8.65 %   8.52 %
Total risk-based capital ratio  13.36 %   13.50 %   13.65 %   13.44 %   13.58 %
________________________                   
(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.

                     
 Quarter Ended  Quarter Ended  Quarter Ended 
  December 31, 2017
   September 30, 2017
  December 31, 2016
 
  Average
Balance
 Interest
Income or
Expense
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 fees and costs (1)(3)$ 2,728,736 $ 31,404  4.57 % $ 2,593,667 $ 30,902  4.73 % $ 2,421,057 $ 27,043  4.44 %
Investment securities (1)                    
Taxable  356,457   2,372  2.64 %   339,671   2,221  2.59 %   352,248   2,171  2.45 %
Tax-exempt  222,312   1,220  2.18 %   210,363   1,233  2.33 %   204,555   1,224  2.38 %
Bank Stocks (4)  19,951   279  5.55 %   19,993   275  5.46 %   16,923   234  5.50 %
Other earning assets  16,206   65  1.59 %   18,060   57  1.25 %   98,920   128  0.51 %
Total interest-earning assets  3,343,662   35,340  4.19 %   3,181,754   34,688  4.33 %   3,093,703   30,800  3.96 %
Non-earning assets:                    
Cash and due from banks  23,879        35,426        36,494     
Other assets  236,011        206,044        205,946     
Total assets$ 3,603,552      $ 3,423,224      $ 3,336,143     
                     
LIABILITIES AND STOCKHOLDERS' EQUITY:                  
Interest-bearing liabilities:                    
Deposits:                    
Interest-bearing demand and NOW$ 831,610 $ 351  0.17 % $ 850,670 $ 380  0.18 % $ 794,139 $ 345  0.17 %
Money market  544,882   516  0.38 %   493,433   459  0.37 %   519,361   359  0.27 %
Savings  198,513   56  0.11 %   182,190   51  0.11 %   162,363   46  0.11 %
Time certificates of deposit  449,767   1,159  1.02 %   420,102   1,049  0.99 %   377,499   810  0.85 %
Total interest-bearing deposits  2,024,772   2,082  0.41 %   1,946,395   1,939  0.40 %   1,853,362   1,560  0.33 %
Borrowings:                    
Repurchase agreements  47,029   23  0.19 %   33,958   16  0.19 %   36,828   21  0.23 %
Federal funds purchased  1   - 1.95 %   1   - 1.46 %   2   - 0.84 %
Subordinated debentures  65,056   872  5.32 %   65,035   868  5.30 %   64,984   840  5.14 %
Borrowings  95,052   569  2.37 %   91,087   531  2.31 %   98,148   557  2.26 %
Total interest-bearing liabilities  2,231,910   3,546  0.63 %   2,136,476   3,354  0.62 %   2,053,324   2,978  0.58 %
Noninterest bearing liabilities:                    
Demand deposits  958,934        898,262        909,523     
Other liabilities  15,208        15,739        22,045     
Total liabilities  3,206,052        3,050,477        2,984,892     
Stockholders' Equity  397,500        372,747        351,251     
Total liabilities and stockholders' equity$ 3,603,552      $ 3,423,224      $ 3,336,143     
                     
Net interest income  $ 31,794      $ 31,334      $ 27,822   
Net interest margin     3.77 %      3.91 %      3.58 %
Net interest margin, fully tax                     
equivalent (2)     3.89 %      4.02 %      3.68 %
 ________________________                    
(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.
 


              
 Year Ended  Year Ended 
  December 31, 2017
   December 31, 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 fees and costs (1)(3)$ 2,611,435 $ 118,674  4.54 % $ 2,024,804 $ 87,249  4.31 %
Investment securities (1)             
Taxable  352,989   9,264  2.62 %   300,568   7,625  2.54 %
Tax-exempt  209,224   4,933  2.36 %   130,242   3,683  2.83 %
Bank Stocks (4)  21,910   1,290  5.89 %   18,897   1,063  5.63 %
Other earning assets  10,782   141  1.31 %   35,821   233  0.65 %
Total interest-earning assets  3,206,340   134,302  4.19 %   2,510,332   99,853  3.98 %
Non-earning assets:             
Cash and due from banks  32,364        28,896     
Other assets  213,085        128,807     
Total assets$ 3,451,789      $ 2,668,035     
              
LIABILITIES AND STOCKHOLDERS' EQUITY:           
Interest-bearing liabilities:             
Deposits:             
Interest-bearing demand and NOW$ 816,017 $ 1,442  0.18 % $ 514,877 $ 702  0.14 %
Money market  502,064   1,711  0.34 %   438,100   1,181  0.27 %
Savings  183,147   203  0.11 %   155,236   173  0.11 %
Time certificates of deposit  414,838   3,988  0.96 %   310,961   2,803  0.90 %
Total interest-bearing deposits  1,916,066   7,344  0.38 %   1,419,174   4,859  0.34 %
Borrowings:             
Repurchase agreements  37,332   71  0.19 %   25,221   52  0.21 %
Federal funds purchased   1   - 1.58 %   2   - 0.94 %
Subordinated debentures  65,025   3,440  5.29 %   43,691   2,005  4.59 %
Borrowings  144,395   2,648  1.83 %   188,380   2,549  1.35 %
Total interest-bearing liabilities  2,162,819   13,503  0.62 %   1,676,468   9,465  0.56 %
Noninterest bearing liabilities:             
Demand deposits  900,657        711,678     
Other liabilities  15,080        15,415     
Total liabilities  3,078,556        2,403,561     
Stockholders' Equity  373,233        264,474     
Total liabilities and stockholders' equity$ 3,451,789      $ 2,668,035     
              
Net interest income  $ 120,799      $ 90,388   
Net interest margin     3.77 %      3.60 %
Net interest margin, fully tax equivalent (2)     3.88 %      3.69 %
 ________________________             
(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 increased $4.0 million in the fourth quarter 2017, compared to the same quarter in 2016, and increased $0.5 million, compared to the third 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 Home State and Castle Rock transactions. Third quarter 2017 net interest income included a $0.9 million interest recovery on an impaired loan paid off during the quarter.

Net interest margin and loan yield were favorably impacted by the accretion of the discount on loans acquired in the Home State transaction in the third quarter 2016 and loans acquired in the Castle Rock transaction in the fourth quarter 2017. Accretion on acquired loans was $1.4 million in the fourth quarter 2017, compared to $1.0 million in the third quarter 2017, and $1.0 million in the fourth quarter 2016. Fourth quarter 2017 interest income included $0.9 million in accreted discount on loans paid off during the quarter.

For the year ended December 31, 2017, net interest income increased $30.4 million compared to the prior year, primarily due to a $696.0 million, or 27.7% increase in average earning assets, partially offset by a $486.4 million, or 29.0% increase in average interest bearing liabilities. Accretion of discount on acquired loans was $4.4 million during 2017, compared to $1.3 million in 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. The Company acquired $71.1 million in loans and $128.4 million in deposits as a result of the October 2017 Castle Rock transaction.

Noninterest Income

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

            
          
  Quarter Ended  Year Ended
  December 31,
2017
 September 30,
2017
 December 31,
2016
  December 31,
2017
 December 31,
2016
            
  (In thousands)
Noninterest income:           
Deposit service and other fees $ 3,546$ 3,580 $ 3,405 $ 13,951 $ 10,447 
Investment management and trust  1,523  1,478   1,563   6,005   5,452 
Increase in cash surrender value of life insurance  675  674   607   2,559   2,005 
Gain (loss) on sale of securities  80  (86)  49   (6)  (73)
Gain on sale of SBA loans  285  143   401   1,256   873 
Other  461  341   207   1,679   553 
Total noninterest income$ 6,570$ 6,130 $ 6,232 $ 25,444 $ 19,257 
               

Beginning late in the third quarter 2016, noninterest income was favorably impacted by the Home State transaction, affecting deposit service and other fees, debit card interchange fees, and investment management and trust income.

Noninterest income increased $0.3 million in the fourth quarter 2017, compared to the same quarter in 2016 and increased $0.4 million, compared to the third quarter 2017. The $0.3 million increase in noninterest income in the fourth quarter 2017, compared to the same quarter in 2016, was primarily due to an increase in interest rate swap fees. The $0.4 million increase in noninterest income in the fourth quarter 2017, compared to the third quarter 2017, was primarily due to a $0.2 million increase in interest rate swap fees and a $0.2 million increase in gain on sales of securities.

For the year ended December 31, 2017, noninterest income increased $6.2 million, or 32.1%, compared to the same period in 2016. In addition to the impact of the Home State transaction, gain on sales of SBA loans increased $0.4 million, bank-owned life insurance income increased $0.6 million, and interest rate swap fees increased $0.4 million for the year ended December 31, 2017, compared to the prior year. The Company also recorded a $0.3 million gain on sale of its $2.0 million credit card loan portfolio, included in other noninterest income in the table above, in the first quarter 2017.

On January 16, 2018, the Company subsidiary, Private Capital Management LLC, closed on its acquisition of the assets of Wagner Wealth Management, LLC, increasing its assets under management to over $1.1 billion on a pro-forma basis at December 31, 2017. Including the assets under management in our trust division of the Bank, the Company’s total assets under management was over $1.4 billion on a pro-forma basis at December 31, 2017.

Noninterest Expense

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

          
  Quarter Ended  Year Ended
  December 31,
2017
 September 30,
2017
 December 31,
2016
  December 31,
2017
 December 31,
2016
            
  (In thousands)
Noninterest expense:           
Salaries and employee benefits$ 11,853$ 11,736 $ 12,654 $ 46,762$ 40,946 
Occupancy expense  1,724  1,714   1,834   6,664  5,887 
Furniture and equipment  1,004  974   789   3,898  3,070 
Amortization of intangible assets  776  672   689   2,745  1,557 
Other real estate owned, net  -  (20)  4   174  31 
Insurance and assessments  671  642   496   2,666  2,314 
Professional fees  974  929   914   4,129  3,639 
Impairment of long-lived assets  170  -   185   394  185 
Other general and administrative  6,784  5,160   5,672   19,363  15,158 
Total noninterest expense$ 23,956$ 21,807 $ 23,237 $ 86,795$ 72,787 
             

Noninterest expense increased $0.7 million for the fourth quarter 2017, compared to the same quarter in 2016, mostly due to a $0.3 million increase in merger-related expenses, described below, and a $0.5 million increase in employee incentive and bonus expense. Noninterest expense increased $2.1 million for the fourth quarter 2017, compared to the third quarter 2017, primarily due to the $3.0 million increase in merger-related expenses described below, partially offset by a $1.6 million settlement related to a commercial real estate matter incurred in the third quarter 2017, included in other general and administrative expense in the table above.

During the fourth quarter 2017, merger-related expenses related to the Castle Rock acquisition were $3.3 million and were included in other general and administrative expense. During the fourth quarter 2016, merger-related expenses for the Home State acquisition were $3.0 million, consisting of $0.5 million in salaries and employee benefits expense and $2.5 million in other general and administrative expense.

For the year ended December 31, 2017, noninterest expense increased $14.0 million, compared to the same period in 2016, primarily due to the overall growth of the Company, including the acquisition of Home State in September 2016 and the acquisition of Castle Rock in October 2017. Although noninterest expense increased in 2017 compared to 2016, noninterest expense as a percentage of average assets declined from 2.73% in 2016 to 2.51% in 2017.

The largest drivers of the $14.0 million increase in noninterest expense for the year ended December 31, 2017, compared to 2016, were a $5.8 million increase in salaries and employee benefits and a $4.2 million increase in other general and administrative expense. The increase in employee salary and benefits for the year ended December 31, 2017, compared to 2016, was primarily due to a $3.1 million increase in base salaries and a $1.6 million increase in employee benefit costs. Average full-time equivalent employees increased from 421 for the year ended December 31, 2016 to 496 for the year ended December 31, 2017, mostly due to the acquisition of Home State. The increase in other general and administrative expense for the year ended December 31, 2017 compared to 2016, was primarily due to a $1.6 million settlement of a litigation claim mentioned above, a $1.4 million increase in data processing expense, a $0.7 million increase in debit card interchange expense and a $0.4 million increase in communication expense.

Merger-related expenses for the year ended December 31, 2017 were $3.6 million, primarily related to the Castle Rock acquisition and included in other general and administrative expense. Merger-related expenses for the year ended December 31, 2016 were $6.3 million, related to the Home State acquisition and consisted of $1.9 million in salaries and employee benefits consisting of severance and retention payments, and $4.4 million in other general and administrative expense.

Tax Expense

In December 2017, the Tax Cuts and Jobs Act of 2017 was signed into law. This new tax law reduced the statutory federal corporate tax rate from 35.0% to 21.0%. The impact on the Company’s net deferred tax asset resulted in a tax write-down of $1.0 million and is expected to lower the Company’s effective tax rate to approximately 22% to 23% in 2018.

Balance Sheet

                    
  December 31,   September 30,    June 30,    March 31,   December 31, 
  2017   2017   2017   2017   2016 
  (Dollars in thousands)
Total assets$ 3,698,890   $ 3,510,046   $ 3,403,852   $ 3,399,651   $ 3,366,427  
Average assets, quarter-to-date   3,603,552     3,423,224     3,404,109     3,374,153     3,336,143  
Total loans, net of deferred fees and costs  2,807,388     2,661,866     2,578,472     2,570,750     2,519,138  
Total deposits  2,941,627     2,898,060     2,763,623     2,765,630     2,699,084  
                    
Equity ratio - GAAP  10.95 %   10.69 %   10.80 %   10.56 %   10.47 %
Tangible common equity ratio (1)  8.99 %   8.88 %   8.91 %   8.65 %   8.52 %
________________________                   
(1) See reconciliation of non-GAAP financial measures to the corresponding GAAP measurement in "Non-GAAP Financial Measures" later in this document.
 

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

           
  December 31, September 30,  June 30,  March 31,  December 31,
  2017  2017  2017  2017  2016 
  (In thousands)
Loans held for sale $ 1,725 $ 314 $ 887 $ 951 $ 4,129 
Commercial and residential real estate  1,977,431   1,892,828   1,799,114   1,800,194   1,768,424 
Construction   99,965   81,826   99,632   103,682   88,451 
Commercial  523,355   499,936   490,771   482,318   461,666 
Consumer  143,066   124,625   122,994   120,231   125,264 
Other  61,982   62,277   64,920   63,369   71,265 
Total gross loans  2,807,524   2,661,806   2,578,318   2,570,745   2,519,199 
Deferred (fees) and costs  (136)  60   154   5   (61)
Loans, net  2,807,388   2,661,866   2,578,472   2,570,750   2,519,138 
Less allowance for loan losses   (23,250)  (22,900)  (23,125)  (23,175)  (23,250)
Net loans$ 2,784,138 $ 2,638,966 $ 2,555,347 $ 2,547,575 $ 2,495,888 
                

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

           
  December 31, September 30,  June 30,  March 31,  December 31,
  2017  2017  2017  2017  2016 
  (In thousands)
Beginning balance$ 2,661,806 $ 2,578,318 $ 2,570,745 $ 2,519,199 $ 2,412,650 
New credit extended  186,969   192,774   132,420   139,185   232,499 
Acquisition of Castle Rock Bank  71,052   -   -   -   - 
Net existing credit advanced  77,307   59,275   73,298   111,821   142,448 
Net pay-downs and maturities  (191,624)  (165,520)  (196,511)  (195,678)  (272,326)
Other  2,014   (3,041)  (1,634)  (3,782)  3,928 
Gross loans  2,807,524   2,661,806   2,578,318   2,570,745   2,519,199 
Deferred (fees) and costs  (136)  60   154   5   (61)
Loans, net$ 2,807,388 $ 2,661,866 $ 2,578,472 $ 2,570,750 $ 2,519,138 
           
Net change - loans outstanding$ 145,522 $ 83,394 $ 7,722 $ 51,612 $ 106,139 
                

During the fourth quarter 2017, loans net of deferred costs and fees increased $145.5 million, comprised of $264.3 million in new loans and advances on existing loans and $71.1 million in loans acquired in the Castle Rock transaction, partially offset by $191.6 million in net pay-downs and maturities during the quarter. In addition to contractual loan principal payments and maturities, the fourth quarter 2017 included $44.5 million in early payoffs related to our borrowers selling their assets, $20.6 million in loan payoffs related to our strategic decision to not match certain financing terms offered by competitors, and $9.7 million in loan pay-downs related to fluctuations in loan balances to existing customers.

For the year ended December 31, 2017, loans net of deferred costs and fees increased by $288.3 million, or 11.4%, primarily due to a 13.1% increase in commercial loans and an 11.8% increase in commercial and residential real estate loans.

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

           
  December 31, September 30,  June 30,  March 31, December 31,
  2017 2017 2017 2017 2016
  (In thousands)
Noninterest-bearing demand$ 939,550 $ 924,361 $ 876,043 $ 868,189 $ 916,632 
Interest-bearing demand and NOW  813,882   866,309   811,639   821,518   767,523 
Money market  527,621   502,400   475,656   489,921   484,664 
Savings  201,687   183,366   183,200   178,157   164,478 
Time  458,887   421,624   417,085   407,845   365,787 
Total deposits$ 2,941,627 $ 2,898,060 $ 2,763,623 $ 2,765,630 $ 2,699,084 
           

At December 31, 2017, deposits increased $242.5 million compared to December 31, 2016. The year-over-year increase in deposits was attributable to organic growth and $128.4 million in deposits acquired in the October 27, 2017 Castle Rock transaction. During the fourth quarter 2017, average deposits increased $139.0 million compared to the third quarter 2017. During the fourth quarter 2017, the balances of several of our large commercial deposit customers decreased due to normal cash flow fluctuations. At December 31, 2017, noninterest-bearing deposits as a percentage of total deposits were 31.9%, compared to 31.9% at September 30, 2017 and 34.0% at December 31, 2016.

Regulatory Capital Ratios 

The following table provides the capital ratios of the Company and the Bank as of the dates presented, along with the applicable regulatory capital requirements:

         
 Ratio at
December 31,
2017
 Ratio at
December 31,
2016
 Minimum Requirement
for “Adequately Capitalized”
Institution plus fully
phased in Capital
Conservation Buffer
 Minimum
Requirement for
"Well-Capitalized"
Institution
 
Common Equity Tier 1 Risk-Based Capital Ratio       
Consolidated 10.57 % 10.46 % 7.00 %N/A 
Guaranty Bank and Trust Company 12.29 % 12.43 % 7.00 % 6.50 %
         
Tier 1 Risk-Based Capital Ratio        
Consolidated 11.36 % 11.34 % 8.50 %N/A 
Guaranty Bank and Trust Company 12.29 % 12.43 % 8.50 % 8.00 %
         
Total Risk-Based Capital Ratio        
Consolidated 13.36 % 13.58 % 10.50 %N/A 
Guaranty Bank and Trust Company 13.03 % 13.26 % 10.50 % 10.00 %
         
Leverage Ratio        
Consolidated 10.21 % 9.81 % 4.00 %N/A 
Guaranty Bank and Trust Company 11.05 % 10.76 % 4.00 % 5.00 %

At December 31, 2017, all of our regulatory capital ratios remained well above minimum requirements for a “well-capitalized” institution. Our consolidated total risk-based capital ratio decreased compared to December 31, 2016, primarily due to an increase in risk-based assets during the year ended December 31, 2017. At December 31, 2017, most of our bank-level capital ratios had declined compared to December 31, 2016, primarily due to the $18.7 million dividend paid to the Company in the second quarter 2017 to fund stockholder dividends and debt servicing during 2017.

Asset Quality

The following table presents select asset quality data, including quarterly charged-off loans, recoveries and provision for loan losses as of the dates indicated:

                
                
  December 31,  September 30,   June 30,   March 31,   December 31, 
  2017   2017   2017   2017   2016  
  (Dollars in thousands) 
Originated nonaccrual loans $ 3,932  $ 3,935  $ 3,332  $ 3,387  $ 3,345  
Purchased credit impaired loans  1,622    809    1,290    1,715    1,902  
Accruing loans past due 90 days or more (1)  -    -    -    -    -  
                
Total nonperforming loans (NPLs)$ 5,554  $ 4,744  $ 4,622  $ 5,102  $ 5,247  
Other real estate owned and foreclosed assets  761    -    113    257    569  
                
Total nonperforming assets (NPAs) $ 6,315  $ 4,744  $ 4,735  $ 5,359  $ 5,816  
                
Total classified assets$ 28,330  $ 28,186  $ 29,188  $ 30,201  $ 33,443  
                
Accruing loans past due 30-89 days (1)$ 2,869  $ 9,129  $ 957  $ 3,858  $ 1,337  
                
Charged-off loans$ (117) $ (970) $ (338) $ (125) $ (290) 
Recoveries  183    248    82    45    150  
Net (charge-offs) recoveries$ 66  $ (722) $ (256) $ (80) $ (140) 
                
Provision for loan losses$ 284  $ 497  $ 206  $ 5  $ 90  
                
Allowance for loan losses$ 23,250  $ 22,900  $ 23,125  $ 23,175  $ 23,250  
                
Unaccreted loan discount (2)$ 13,049  $ 11,654  $ 12,665  $ 13,896  $ 14,682  
                
Selected ratios:               
NPLs to loans, net of deferred fees and costs (3)  0.20 %  0.18 %  0.18 %  0.20 %  0.21 %
NPAs to total assets  0.17 %  0.14 %  0.14 %  0.16 %  0.17 %
Allowance for loan losses to NPLs  418.62 %  482.72 %  500.32 %  454.23 %  443.11 %
Allowance for loan losses to loans, net of deferred fees and costs (3)  0.83 %  0.86 %  0.90 %  0.90 %  0.92 %
Loans 30-89 days past due to loans, net of deferred fees and costs (3)  0.10 %  0.34 %  0.04 %  0.15 %  0.05 %
Texas ratio (4)  1.53 %  1.22 %  1.26 %  1.39 %  1.55 %
Classified asset ratio (5)  7.43 %  7.57 %  8.08 %  8.24 %  9.79 %
________________________               
(1) Past due loans include both loans that are past due with respect to payments and loans that are past due because the loan has matured, and is in the process of renewal, but continues to be current with respect to payments.  
(2) Related to loans acquired in the Home State and Castle Rock transactions. 
(3) Loans, net of deferred fees and costs, exclude loans held for sale. 
(4) Texas ratio defined as total NPAs divided by subsidiary bank only Tier 1 Capital plus allowance for loan losses. 
(5) Classified asset ratio is defined as total classified assets to subsidiary bank only Tier 1 Capital plus allowance for loan losses. 
  

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

           
December 31, 2017 30-89
Days Past
Due
 90 Days +
Past Due
and Still
Accruing
 Nonaccrual Total Nonaccrual
and
Past Due
 Total Loans,
Held for
Investment
  (In thousands)
Commercial and residential real estate$ 410 $ -$ 1,750 $ 2,160 $ 1,977,335 
Construction   -  -  -  -  99,960 
Commercial  1,663   -  2,079   3,742   523,330 
Consumer  469   -  444   913   143,059 
Other  327   -  1,281   1,608   61,979 
Total$ 2,869 $ -$ 5,554 $ 8,423 $ 2,805,663 

 

           
           
December 31, 2016 30-89
Days Past
Due
 90 Days +
Past Due
and Still
Accruing
 Nonaccrual Total Nonaccrual
and
Past Due
 Total Loans,
Held for
Investment
  (In thousands)
Commercial and residential real estate$ 1,258 $ -$ 2,835 $ 4,093 $ 1,768,381 
Construction  -  -  -  -  88,449 
Commercial  37   -  1,094   1,131   432,072 
Consumer   42   -  201   243   125,261 
Other  -  -  1,117   1,117   100,846 
Total$ 1,337 $ -$ 5,247 $ 6,584 $ 2,515,009 
           

At December 31, 2017, nonperforming assets were $6.3 million, an increase of $1.6 million compared to September 30, 2017 and an increase of $0.5 million compared to December 31, 2016. As a result of the Castle Rock transaction, the Company acquired $1.6 million of nonperforming loans and $0.8 million of other real estate owned. At December 31, 2017, performing troubled debt restructurings were $18.1 million, compared to $11.0 million at September 30, 2017 and $25.1 million at December 31, 2016. The increase in performing troubled debt restructurings in the fourth quarter 2017, compared to the third quarter 2017, was due to the modification of a single commercial loan. The year-over-year decrease in performing troubled debt restructurings was primarily due to the payoff of a $9.4 million out-of-state loan syndication during the third quarter 2017, partially offset by the modification of a single commercial loan during the fourth quarter 2017. The increase in loans 30-89 days past due during the fourth quarter 2017, compared to the fourth quarter 2016, was mostly due to a single commercial loan relationship.

Net recoveries were $0.1 million during the fourth quarter 2017, compared to net charge-offs of $0.7 million during the third quarter 2017 and net charge-offs of $0.1 million in the fourth quarter 2016. During the fourth quarter 2017, the Bank recorded a $0.3 million provision for loan losses, compared to a $0.5 million provision in the third quarter 2017 and a $0.1 million provision in the fourth quarter 2016. The Bank considered recoveries, historical charge-offs, the level of nonperforming loans, loan growth and other factors when determining the adequacy of the allowance for loan losses and the resulting amount of loan loss provision to be recognized during the quarter.

Shares Outstanding

As of December 31, 2017, the Company had 29,222,264 shares of voting common stock outstanding, of which 434,149 shares were in the form of unvested stock awards.

Non-GAAP Financial Measures

The Company discloses certain non-GAAP financial measures related to tangible assets, including tangible book value and tangible common equity, and operating earnings adjusted for merger-related expenses, OREO expenses, debt termination expense, impairments of long-lived assets, litigation-related settlements, securities gains and losses, net deferred tax asset write-downs and gains or losses on the sale or disposal of other assets. The Company also discloses the following GAAP profitability metrics alongside the operating earnings equivalent: return on average assets, return on average equity and earnings per share (diluted).

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 operating earnings to GAAP net income as of the dates indicated:

                 
 Quarter Ended   Year Ended
  December 31,  September 30,   December 31,   December 31,  December 31, 
  2017   2017   2016    2017   2016  
                 
  (Dollars in thousands, except per share amounts)
Net income$ 8,605  $ 10,054  $ 7,421   $ 38,624  $ 24,727  
Expenses adjusted for:                
Expenses (gains) related to other real estate owned, net  -    (20)   4     174    31  
Merger-related expenses  3,319    268    3,032     3,587    6,259  
Impairment of long-lived assets  170    -    185     394    185  
Litigation-related settlements  75    1,600    -     1,675    -  
Income adjusted for:                
(Gain) loss on sale of securities  (80)   86    (49)    6    73  
(Gain) on sale of other assets  -    (2)   -     (259)   (14) 
Pre-tax earnings adjustment  3,484    1,932    3,172     5,577    6,534  
Tax effect of adjustments (1)  (1,180)   (679)   (1,148)    (1,921)   (2,248) 
Net deferred tax assets write-down (2)  976    -    -     976    -  
Tax effected operating earnings adjustment  3,280    1,253    2,024     4,632  -  4,286  
Operating earnings$ 11,885  $ 11,307  $ 9,445   $ 43,256  $ 29,013  
                 
Average assets$ 3,603,552  $ 3,423,224  $ 3,336,143   $ 3,451,789  $ 2,668,035  
                 
Average equity$ 397,500  $ 372,747  $ 351,251   $ 373,233  $ 264,474  
                 
Fully diluted average common shares outstanding:  28,791,748    28,120,111    28,043,944     28,343,687    23,559,947  
                 
Earnings per common share–diluted:$ 0.30  $ 0.36  $ 0.26   $ 1.36  $ 1.05  
Earnings per common share–diluted - operating:$ 0.41  $