SOURCE: Guaranty Bancorp

Guaranty Bancorp

July 19, 2017 16:10 ET

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

DENVER, CO--(Marketwired - July 19, 2017) -

  • 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
                  

For the six months ended June 30, 2017, new credit extended and credit advanced on existing lines increased $91.1 million, or 24.9% to $456.7 million, compared to $365.6 million in the same period in 2016. Net pay-downs and maturities on loans increased $109.8 million, or 38.9% to $392.2 million for the six months ended June 30, 2017, compared to $282.4 million for the same period in 2016. In addition to contractual loan principal payments and maturities, the second quarter 2017 included $40.1 million in early payoffs related to our borrowers selling their assets, $18.0 million in payoffs due to our strategic decision not to match certain financing terms offered by competitors, $17.2 million in loan pay-downs related to fluctuations in loan balances to existing customers and $8.1 million in loan payoffs related to watch or classified loans.

Balance Sheet (continued)

Second quarter 2017 average loans increased $40.6 million, or 6.4% annualized. Net loan growth was $7.7 million during the second quarter 2017, compared to the first quarter 2017. During the twelve months ended June 30, 2017, loans increased by $679.9 million, or 35.8%. Excluding the loans acquired in the transaction with Home State, loans grew $234.4 million, or 12.3% since June 30, 2016.

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

                     
    June 30,   March 31,   December 31,   September 30,   June 30,
    2017   2017   2016   2016   2016
    (In thousands)
Noninterest-bearing demand $  876,043  $  868,189  $  916,632  $  857,064  $  638,110 
Interest-bearing demand and NOW    811,639     821,518     767,523     802,043     383,492 
Money market    475,656     489,921     484,664     554,447     392,730 
Savings    183,200     178,157     164,478     160,698     149,798 
Time    417,085     407,845     365,787     377,860     283,231 
Total deposits $  2,763,623  $  2,765,630  $  2,699,084  $  2,752,112  $  1,847,361 
           

At June 30, 2017, deposits were $2.8 billion, an increase of $0.9 billion, or 49.6%, compared to June 30, 2016. The $769.7 million in deposits acquired in the Home State transaction, consisted of $685.6 million in non-maturing deposits and $84.1 million in time deposits. Excluding the deposits acquired in the Home State transaction total deposits grew $146.6 million during the twelve months ended June 30, 2017. At June 30, 2017, noninterest-bearing deposits as a percentage of total deposits were 31.7%, compared to 34.5% at June 30, 2016 and 31.4% at March 31, 2017. At June 30, 2017, securities sold under agreements to repurchase were $29.6 million, compared to $36.9 million at December 31, 2016 and $18.0 million at June 30, 2016. Securities sold under agreements to repurchase acquired in the Home State transaction were $20.0 million.

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
June 30,
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 10.61 % 10.46 % 7.00 % N/A  
 Guaranty Bank and Trust Company 12.19 % 12.43 % 7.00 % 6.50 %
                 
Tier 1 Risk-Based Capital Ratio                
 Consolidated 11.47 % 11.34 % 8.50 % N/A  
 Guaranty Bank and Trust Company 12.19 % 12.43 % 8.50 % 8.00 %
                 
Total Risk-Based Capital Ratio                
 Consolidated 13.65 % 13.58 % 10.50 % N/A  
 Guaranty Bank and Trust Company 12.99 % 13.26 % 10.50 % 10.00 %
                 
Leverage Ratio                
 Consolidated 9.98 % 9.81 % 4.00 % N/A  
 Guaranty Bank and Trust Company 10.60 % 10.76 % 4.00 % 5.00 %
          

At June 30, 2017, all of our regulatory capital ratios remained well above minimum requirements for a "well-capitalized" institution. Our consolidated total risk-based capital ratio increased compared to December 31, 2016, primarily due to an increase in retained 2017 earnings. At June 30, 2017, our bank-level capital ratios 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:

                               
    June 30,     March 31,     December 31,     September 30,     June 30,  
    2017     2017     2016     2016     2016  
    (Dollars in thousands)  
Originated nonaccrual loans $ 3,332   $ 3,387   $ 3,345   $ 3,399   $ 13,326  
Purchased credit impaired loans   1,290     1,715     1,902     2,108     -  
Accruing loans past due 90 days or more(1)   -     -     -     335     -  
                               
Total nonperforming loans (NPLs) $ 4,622   $ 5,102   $ 5,247   $ 5,842   $ 13,326  
Other real estate owned and foreclosed assets   113     257     569     637     674  
                               
Total nonperforming assets (NPAs) $ 4,735   $ 5,359   $ 5,816   $ 6,479   $ 14,000  
                               
Total classified assets $ 29,188   $ 30,201   $ 33,443   $ 34,675   $ 25,644  
                               
Accruing loans past due 30-89 days(1) $ 957   $ 3,858   $ 1,337   $ 2,157   $ 2,386  
                               
Charged-off loans $ (338)   $ (125)   $ (290)   $ (72)   $ (57)  
Recoveries   82     45     150     295     72  
 Net (charge-offs) recoveries $ (256)   $ (80)   $ (140)   $ 223   $ 15  
                               
Provision for loan losses $ 206   $ 5   $ 90   $ 27   $ 10  
                               
Allowance for loan losses $ 23,125   $ 23,175   $ 23,250   $ 23,300   $ 23,050  
                               
Unaccreted loan discount(5) $ 12,665   $ 13,896   $ 14,682   $ 15,721   $ -  
                               
Selected ratios:                              
NPLs to loans, net of deferred costs and fees(2)   0.18 %   0.20 %   0.21 %   0.24 %   0.70 %
NPAs to total assets   0.14 %   0.16 %   0.17 %   0.19 %   0.58 %
Allowance for loan losses to NPLs   500.32 %   454.23 %   443.11 %   398.84 %   172.97 %
Allowance for loan losses to loans, net of deferred costs and fees(2)   0.90 %   0.90 %   0.92 %   0.97 %   1.21 %
Loans 30-89 days past due to loans, net of deferred costs and fees(2)   0.04 %   0.15 %   0.05 %   0.09 %   0.13 %
Texas ratio(3)   1.26 %   1.39 %   1.55 %   1.77 %   5.17 %
Classified asset ratio(4)   8.08 %   8.24 %   9.79 %   10.69 %   10.55 %
________________________                              

(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)  Loans, net of deferred costs and fees, exclude loans held for sale.
(3)  Texas ratio defined as total NPAs divided by subsidiary bank only Tier 1 Capital plus allowance for loan losses.
(4)  Classified asset ratio defined as total classified assets to subsidiary bank only Tier 1 Capital plus allowance for loan losses.
(5)  Related to loans acquired in the Home State transaction.

Asset Quality (continued)

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

                         
June 30, 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 $ -  $ -  $ 2,154  $ 2,154  $ 1,799,222
Construction   -    -    -    -    99,638
Commercial   587    -    1,368    1,955    451,728
Consumer   370    -    193    563    123,001
Other   -    -    907    907    103,996
Total $ 957  $ -  $ 4,622  $ 5,579  $ 2,577,585
               
                         
                         
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
               

During the second quarter 2017, nonperforming assets decreased by $0.6 million from March 31, 2017 and $9.3 million from June 30, 2016. The $9.3 million decline in nonperforming assets, compared to June 30, 2016 included the return of a $9.4 million out-of-state loan syndication to performing status. Also, as a result of the transaction with Home State, $2.1 million of nonperforming loans were acquired. At June 30, 2017, performing troubled debt restructurings were $23.4 million, compared to $23.2 million at March 31, 2017 and $13.1 million at June 30, 2016. The increase in performing troubled debt restructurings in the second quarter 2017, compared to the same quarter in 2016, was primarily due to a return of the $9.4 million out-of-state loan syndication to performing status, described above.

At June 30, 2017, classified assets represented 8.1% of bank-level Tier 1 risk-based capital plus allowance for loan losses, compared to 8.2% at March 31, 2017 and 10.6% at June 30, 2016.

Net charge-offs were $0.3 million during the second quarter of 2017, compared to $0.1 million during the first quarter 2017 and immaterial net recoveries in the second quarter of 2016. During the second quarter 2017, the Bank recorded a $0.2 million provision for loan losses, compared to immaterial provisions in the first quarter 2017 and the second 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 June 30, 2017, the Company had 28,406,758 shares of voting common stock outstanding, of which 487,994 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, securities gains and losses 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:

                                 
  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  
Expenses adjusted for:                                
 Expenses (gains) related to other real estate owned, net   126     68     5       194     7  
 Merger-related expenses   -     -     347       -     1,022  
 Impairment of long-lived assets   34     190     -       224     -  
Income adjusted for:                                
 Loss on sale of securities   -     -     101       -     56  
 (Gain) loss on sale of other assets   14     (271)     -       (257)     (14)  
Pre-tax earnings adjustment   174     (13)     453       161     1,071  
Tax effect of adjustments(1)   (67)     5     (90)       (62)     (325)  
Tax effected operating earnings adjustment   107     (8)     363       99 -   746  
Operating earnings $ 10,232   $ 9,832   $ 6,049     $ 20,064   $ 12,287  
                                 
Average assets $ 3,404,109   $ 3,374,153   $ 2,356,964     $ 3,389,212   $ 2,358,059  
                                 
Average equity $ 364,959   $ 357,288   $ 228,060     $ 361,145   $ 226,120  
                                 
 Fully diluted average common shares outstanding:   28,095,871     28,090,179     21,378,349       28,120,746     21,437,781  
                                 
 Earnings per common share-diluted: $ 0.36   $ 0.35   $ 0.27     $ 0.71   $ 0.54  
Earnings per common share-diluted - operating: $ 0.36   $ 0.35   $ 0.28     $ 0.71   $ 0.57  
                                 
ROAA (GAAP)   1.19 %   1.18 %   0.97 %     1.19 %   0.98 %
ROAA - operating   1.21 %   1.18 %   1.03 %     1.19 %   1.05 %
                                 
ROAE (GAAP)   11.13 %   11.17 %   10.03 %     11.15 %   10.26 %
ROAE - operating   11.25 %   11.16 %   10.67 %     11.20 %   10.93 %
________________                                

(1)  Tax effect calculated using a combined federal and state marginal tax rate of 38.01%, adjusted for tax effect of nondeductible merger-related expenses.

Non-GAAP Financial Measures (continued)

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:

                  
Tangible Book Value per Common Share                 
     June 30,     December 31,     June 30,
     2017     2016     2016
     (Dollars in thousands, except per share amounts)
 Total stockholders' equity  $ 367,529   $ 352,378   $ 229,958
 Less: Goodwill and other intangible assets    (70,424)     (71,721)     (4,694)
 Tangible common equity  $ 297,105   $ 280,657   $ 225,264
                  
 Number of common shares outstanding    28,406,758     28,334,004     21,802,054
                  
 Book value per common share  $ 12.94   $ 12.44   $ 10.55
 Tangible book value per common share  $ 10.46   $ 9.91   $ 10.33
                    
                    
Tangible Common Equity Ratio                   
     June 30,     December 31,     June 30,  
     2017     2016     2016  
     (Dollars in thousands)  
 Total stockholders' equity  $ 367,529   $ 352,378   $ 229,958  
 Less: Goodwill and other intangible assets    (70,424)     (71,721)     (4,694)  
 Tangible common equity  $ 297,105   $ 280,657   $ 225,264  
                     
 Total assets  $ 3,403,852   $ 3,366,427   $ 2,395,015  
 Less: Goodwill and other intangible assets    (70,424)     (71,721)     (4,694)  
 Tangible assets  $ 3,333,428   $ 3,294,706   $ 2,390,321  
                     
 Equity ratio - GAAP (total stockholders' equity / total assets)    10.80 %   10.47 %   9.60 %
 Tangible common equity ratio (tangible common equity / tangible assets)    8.91 %   8.52 %   9.42 %
            

About Guaranty Bancorp

Guaranty Bancorp is a $3.4 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; failure or inability to complete mergers or other corporate transactions; failure or inability to realize fully the expected benefits of mergers or other corporate transactions; Castle Rock Bank's business experiencing disruptions due to transaction-related uncertainty or other factors making it more difficult to maintain relationships with employees, customers, other business partners or governmental entities; difficulty retaining key employees; the parties being unable to successfully implement integration strategies or to achieve expected synergies and operating efficiencies within the expected time-frames or at all; 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; changes in oil and natural gas prices; 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.

Notice to Shareholders

This press release does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. In connection with the proposed merger transaction, a registration statement on Form S-4 will be filed with the SEC by Guaranty Bancorp. The registration statement will contain a proxy statement/prospectus to be distributed to the shareholders of Castle Rock Bank Holding Company in connection with their vote on the merger. Shareholders of Castle Rock Bank Holding Company are encouraged to read the registration statement and any other relevant documents filed with the SEC, including the proxy statement / prospectus that will be part of the registration statement, because they will contain important information about the proposed merger. The final proxy statement/prospectus will be mailed to shareholders of Castle Rock Bank Holding Company. Investors and security holders will be able to obtain the documents free of charge at the SEC's website, www.sec.gov. In addition, documents filed with the SEC by Guaranty Bancorp will be available free of charge by (1) accessing the Guaranty Bancorp website at www.gbnk.com under the "SEC Filings" link (2) writing Guaranty Bancorp at 1331 17th Street, Suite 200, Denver, CO 80202, Attention: Investor Relations or (3) writing Castle Rock Bank Holding Company at 509 N. Wilcox St., Castle Rock, CO 80104, Attention: Corporate Secretary.

 
GUARANTY BANCORP AND SUBSIDIARIES
Unaudited Consolidated Balance Sheets
                
     June 30,    December 31,    June 30,
     2017    2016    2016
     (In thousands)
Assets               
Cash and due from banks  $ 46,582  $ 50,111  $ 30,446
                
Time deposits with banks    254    254    -
                
Securities available for sale, at fair value    305,910    324,228    198,156
Securities held to maturity    240,899    243,979    149,196
Bank stocks, at cost    23,003    22,649    21,656
   Total investments    569,812    590,856    369,008
                
Loans held for sale    887    4,129    -
                
Loans, held for investment, net of deferred costs and fees    2,577,585    2,515,009    1,898,543
 Less allowance for loan losses    (23,125)    (23,250)    (23,050)
   Net loans, held for investment    2,554,460    2,491,759    1,875,493
                
Premises and equipment, net    64,774    67,390    45,769
Other real estate owned and foreclosed assets    113    569    674
Goodwill    56,404    56,404    -
Other intangible assets, net    14,020    15,317    4,694
Bank owned life insurance    74,050    65,538    49,639
Other assets    22,496    24,100    19,292
   Total assets  $ 3,403,852  $ 3,366,427  $ 2,395,015
                
Liabilities and Stockholders' Equity               
Liabilities:               
 Deposits:               
  Noninterest-bearing demand  $ 876,043  $ 916,632  $ 638,110
  Interest-bearing demand and NOW    811,639    767,523    383,492
  Money market    475,656    484,664    392,730
  Savings    183,200    164,478    149,798
  Time    417,085    365,787    283,231
   Total deposits    2,763,623    2,699,084    1,847,361
                
Securities sold under agreement to repurchase    29,553    36,948    17,990
Federal Home Loan Bank line of credit borrowing    90,900    124,691    141,600
Federal Home Loan Bank term notes    71,772    72,477    120,000
Subordinated debentures, net    65,023    64,981    25,774
Interest payable and other liabilities    15,452    15,868    12,332
   Total liabilities    3,036,323    3,014,049    2,165,057
                
Stockholders' equity:               
 Common stock and additional paid-in capital - common stock    833,600    832,098    713,900
 Accumulated deficit    (354,956)    (367,944)    (375,490)
 Accumulated other comprehensive loss    (5,112)    (6,726)    (3,837)
 Treasury stock    (106,003)    (105,050)    (104,615)
   Total stockholders' equity    367,529    352,378    229,958
   Total liabilities and stockholders' equity  $ 3,403,852  $ 3,366,427  $ 2,395,015
 
 
GUARANTY BANCORP AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
                     
    Three Months Ended June 30,     Six Months Ended June 30,
    2017    2016     2017    2016
    (In thousands, except share and per share data)
Interest income:                    
 Loans, including costs and fees $ 28,976  $ 19,057   $ 56,368  $ 37,911
 Investment securities:                    
  Taxable   2,356    1,753     4,671    3,713
  Tax-exempt   1,243    757     2,480    1,488
 Dividends   347    281     736    592
 Federal funds sold and other   11    3     19    7
  Total interest income   32,933    21,851     64,274    43,711
Interest expense:                    
 Deposits   1,786    1,064     3,323    2,071
 Securities sold under agreement to repurchase   15    8     32    18
 Borrowings   777    733     1,548    1,356
 Subordinated debentures   856    225     1,700    450
  Total interest expense   3,434    2,030     6,603    3,895
  Net interest income   29,499    19,821     57,671    39,816
Provision for loan losses   206    10     211    26
  Net interest income, after provision for loan losses   29,293    19,811     57,460    39,790
Noninterest income:                    
 Deposit service and other fees   3,545    2,292     6,825    4,461
 Investment management and trust   1,483    1,276     3,004    2,556
 Increase in cash surrender value of life insurance   615    460     1,210    908
 Loss on sale of securities   -    (101)     -    (56)
 Gain on sale of SBA loans   447    110     828    264
 Other   252    105     877    187
  Total noninterest income   6,342    4,142     12,744    8,320
Noninterest expense:                    
 Salaries and employee benefits   11,247    8,520     23,173    17,308
 Occupancy expense   1,674    1,261     3,226    2,636
 Furniture and equipment   975    713     1,920    1,531
 Amortization of intangible assets   648    239     1,297    479
 Other real estate owned, net   126    5     194    7
 Insurance and assessments   647    597     1,353    1,210
 Professional fees   1,252    906     2,226    1,763
 Impairment of long-lived assets   34    -     224    -
 Other general and administrative   3,900    2,893     7,419    5,992
  Total noninterest expense   20,503    15,134     41,032    30,926
  Income before income taxes   15,132    8,819     29,172    17,184
Income tax expense   5,007    3,133     9,207    5,643
  Net income $ 10,125  $ 5,686   $ 19,965  $ 11,541
                     
Earnings per common share-basic: $ 0.36  $ 0.27   $ 0.72  $ 0.54
Earnings per common share-diluted:   0.36    0.27     0.71    0.54
Dividend declared per common share: $ 0.13  $ 0.12   $ 0.25  $ 0.23
                     
Weighted average common shares outstanding-basic:   27,913,082    21,242,520     27,890,446    21,213,706
Weighted average common shares outstanding-diluted:   28,095,871    21,378,349     28,120,746    21,437,781

Contact Information

  • Contacts:
    Paul W. Taylor
    President and Chief Executive Officer
    Guaranty Bancorp
    1331 Seventeenth Street, Suite 200
    Denver, CO 80202
    (303) 293-5563

    Christopher G. Treece
    E.V.P., Chief Financial Officer and Secretary
    Guaranty Bancorp
    1331 Seventeenth Street, Suite 200
    Denver, CO 80202
    (303) 675-1194