10-Q 1 gbnk-20150331x10q.htm 10-Q 20150331 Q1

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


 

FORM 10-Q

 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2015

 

OR

 

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                      

 

Commission File Number: 000-51556

 

 

 

GUARANTY BANCORP

(Exact name of registrant as specified in its charter)

 

 

 

 

DELAWARE

 

41-2150446

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer Identification Number)

 

 

1331 Seventeenth St., Suite 200

Denver, CO

 

80202

(Address of principal executive offices)

 

(Zip Code)

 

303-675-1194

(Registrant’s telephone number, including area code)


 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes No  

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.   

  

 

 

Large Accelerated Filer   

Accelerated Filer   

Non-accelerated Filer    (Do not check if smaller reporting company)

Smaller Reporting Company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes No  

 

As of April 29, 2015, there were 21,738,501 shares of the registrant’s common stock outstanding, consisting of 20,719,501 shares of voting common stock, of which 676,017 shares were in the form of unvested stock awards, and  1,019,000 shares of the registrant’s non-voting common stock.

 

1

 


 

 

Table of Contents

 

 

 

 

 

 

  

 

  

 

Page

 

 

 

 

 

 

 

 

PART I—FINANCIAL INFORMATION

  

 

 

 

ITEM 1.

  

Unaudited Condensed Consolidated Financial Statements

  

 

 

 

 

  

Unaudited Condensed Consolidated Balance Sheets

  

 

 

 

 

  

Unaudited Condensed Consolidated Statements of Income

  

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Income

  

 

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity

 

 

 

 

 

 

 

  

Unaudited Condensed Consolidated Statements of Cash Flows

  

 

 

 

 

  

Notes to Unaudited Condensed Consolidated Financial Statements

  

 

 

 

ITEM 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

35 

 

 

 

ITEM 3.

  

Quantitative and Qualitative Disclosures About Market Risk

  

55 

 

 

 

ITEM 4.

  

Controls and Procedures

  

57 

 

 

PART II—OTHER INFORMATION

  

58 

 

 

 

ITEM 1.

  

Legal Proceedings

  

58 

 

 

 

ITEM 1A.

  

Risk Factors

  

58 

 

 

 

ITEM 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

  

58 

 

 

 

ITEM 3.

  

Defaults Upon Senior Securities

  

58 

 

 

 

ITEM 4

 

Mine Safety Disclosure

 

58 

 

 

 

 

 

ITEM 5.

  

Other Information

  

58 

 

 

 

ITEM 6.

  

Exhibits

  

59 

 

 

 

 

 

2

 


 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Unaudited Condensed Consolidated Financial Statements

 

GUARANTY BANCORP AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

2015

 

2014

 

 

(In thousands, except share and per share data)

Assets

 

 

 

 

Cash and due from banks

$

31,649 

$

32,441 

 

 

 

 

 

Securities available for sale, at fair value

 

295,700 

 

346,146 

Securities held to maturity (fair value of $145,274 and $90,809 at

 

 

 

 

March 31, 2015 and December 31, 2014)

 

141,969 

 

88,514 

Bank stocks, at cost

 

14,602 

 

14,822 

Total investments

 

452,271 

 

449,482 

 

 

 

 

 

Loans held for sale

 

700 

 

 -

 

 

 

 

 

Loans, held for investment, net of unearned loan fees

 

1,554,454 

 

1,541,434 

Less allowance for loan losses

 

(22,500)

 

(22,490)

Net loans, held for investment

 

1,531,954 

 

1,518,944 

 

 

 

 

 

Premises and equipment, net

 

48,400 

 

45,937 

Other real estate owned and foreclosed assets

 

2,175 

 

2,175 

Other intangible assets, net

 

6,659 

 

7,154 

Bank-owned life insurance

 

47,795 

 

42,456 

Other assets

 

23,849 

 

26,189 

Total assets

$

2,145,452 

$

2,124,778 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

Liabilities:

 

 

 

 

Deposits:

 

 

 

 

Noninterest-bearing demand

$

659,765 

$

654,051 

Interest-bearing demand and NOW

 

356,573 

 

326,748 

Money market

 

370,705 

 

374,063 

Savings

 

141,948 

 

138,588 

Time

 

192,890 

 

191,874 

Total deposits

 

1,721,881 

 

1,685,324 

 

 

 

 

 

Securities sold under agreement to repurchase and federal funds purchased

 

23,922 

 

33,508 

Federal Home Loan Bank term notes

 

20,000 

 

20,000 

Federal Home Loan Bank line of credit borrowing

 

128,600 

 

140,300 

Subordinated debentures

 

25,774 

 

25,774 

Securities purchased, not yet settled

 

2,284 

 

 -

Interest payable and other liabilities

 

11,854 

 

12,933 

Total liabilities

 

1,934,315 

 

1,917,839 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

Common stock (1)

 

24 

 

24 

Additional paid-in capital - common stock

 

710,217 

 

709,341 

Accumulated deficit

 

(393,193)

 

(396,172)

Accumulated other comprehensive loss

 

(2,466)

 

(3,127)

Treasury stock, at cost, 2,269,778 and 2,248,033 shares, respectively

 

(103,445)

 

(103,127)

Total stockholders’ equity

 

211,137 

 

206,939 

Total liabilities and stockholders’ equity

$

2,145,452 

$

2,124,778 

____________________

 

 

 

 

(1)

Common stock—$0.001 par value; 30,000,000 shares authorized; 24,008,279 shares issued and 21,738,501 shares outstanding at March 31, 2015 (includes 676,017 shares of unvested restricted stock); 23,876,906 shares issued and 21,628,873 shares outstanding at December 31, 2014 (includes 620,075 shares of unvested restricted stock).

 

See "Notes to Unaudited Condensed Consolidated Financial Statements."

3

 


 

 

GUARANTY BANCORP AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

2015

 

2014

 

 

 

 

 

 

 

(In thousands, except share and per share data)

Interest income:

 

 

 

 

Loans, including fees

$

16,806 

$

14,734 

Investment securities:

 

 

 

 

Taxable

 

2,123 

 

2,332 

Tax-exempt

 

702 

 

645 

Dividends

 

222 

 

169 

Federal funds sold and other

 

 

Total interest income

 

19,854 

 

17,881 

Interest expense:

 

 

 

 

Deposits

 

668 

 

580 

Securities sold under agreement to repurchase and

 

 

 

 

federal funds purchased

 

11 

 

Borrowings

 

199 

 

836 

Subordinated debentures

 

199 

 

198 

Total interest expense

 

1,077 

 

1,622 

Net interest income

 

18,777 

 

16,259 

Provision (credit) for loan losses

 

(23)

 

(6)

Net interest income, after provision for loan losses

 

18,800 

 

16,265 

Noninterest income:

 

 

 

 

Deposit service and other fees

 

2,035 

 

2,066 

Investment management and trust

 

1,334 

 

908 

Increase in cash surrender value of life insurance

 

408 

 

293 

Gain on sale of securities

 

 -

 

25 

Gain on sale of SBA loans

 

280 

 

137 

Other

 

58 

 

229 

Total noninterest income

 

4,115 

 

3,658 

Noninterest expense:

 

 

 

 

Salaries and employee benefits

 

8,604 

 

8,075 

Occupancy expense

 

1,697 

 

1,548 

Furniture and equipment

 

730 

 

695 

Amortization of intangible assets

 

495 

 

591 

Other real estate owned, net

 

41 

 

56 

Insurance and assessments

 

565 

 

580 

Professional fees

 

829 

 

892 

Other general and administrative

 

2,309 

 

2,201 

Total noninterest expense

 

15,270 

 

14,638 

Income before income taxes

 

7,645 

 

5,285 

Income tax expense

 

2,561 

 

1,743 

Net income

$

5,084 

$

3,542 

 

 

 

 

 

Earnings per common share–basic:

$

0.24 

$

0.17 

Earnings per common share–diluted: 

 

0.24 

 

0.17 

Dividends declared per common share: 

 

0.10 

 

0.05 

 

 

 

 

 

Weighted average common shares outstanding-basic:

 

21,037,325 

 

20,936,295 

Weighted average common shares outstanding-diluted:

 

21,165,433 

 

21,028,722 

 

See "Notes to Unaudited Condensed Consolidated Financial Statements."

4

 


 

 

GUARANTY BANCORP AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

Net income

$

5,084 

 

$

3,542 

Change in net unrealized gains (losses) on available for sale

 

 

 

 

 

securities during the period excluding the change attributable to

 

 

 

 

 

available for sale securities reclassified to held to maturity

 

1,909 

 

 

4,893 

Income tax effect

 

(726)

 

 

(1,860)

Change in unamortized loss on available for sale securities

 

 

 

 

 

reclassified into held to maturity securities

 

84 

 

 

 -

Income tax effect

 

(32)

 

 

 -

Reclassification adjustment for net (gains) included

 

 

 

 

 

in net income during the period

 

 -

 

 

(25)

Income tax effect

 

 -

 

 

10 

 

 

 

 

 

 

  Change in market value of derivatives during the period

 

(926)

 

 

(282)

Income tax effect

 

352 

 

 

107 

 

 

 

 

 

 

Other comprehensive income 

 

661 

 

 

2,843 

Total comprehensive income

$

5,745 

 

$

6,385 

 

 

 

See "Notes to Unaudited Condensed Consolidated Financial Statements”

 

 

 

5

 


 

 

 

GUARANTY BANCORP AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity

(In thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock
Shares Outstanding

 

Common Stock
and Additional
Paid-in Capital

 

Treasury
Stock

 

Accumulated
Deficit

 

Accumulated Other
Comprehensive
Income (Loss)

 

Totals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2014

21,303,707 

$

706,514 

$

(102,672)

$

(405,494)

$

(8,954)

$

189,394 

Net income

 -

 

 -

 

 -

 

3,542 

 

 -

 

3,542 

Other comprehensive income

 -

 

 -

 

 -

 

 -

 

2,843 

 

2,843 

Stock compensation awards, net of forfeitures

404,761 

 

 -

 

 -

 

 -

 

 -

 

 -

Stock based compensation, net

 -

 

459 

 

 -

 

 -

 

 -

 

459 

Repurchase of common stock

(12,361)

 

 -

 

(163)

 

 -

 

 -

 

(163)

Dividends paid

 -

 

 -

 

 -

 

(1,046)

 

 -

 

(1,046)

Balance, March 31, 2014

21,696,107 

$

706,973 

$

(102,835)

$

(402,998)

$

(6,111)

$

195,029 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2015

21,628,873 

$

709,365 

$

(103,127)

$

(396,172)

$

(3,127)

$

206,939 

Net income

 -

 

 -

 

 -

 

5,084 

 

 -

 

5,084 

Other comprehensive income

 -

 

 -

 

 -

 

 -

 

661 

 

661 

Stock compensation awards, net of forfeitures

131,373 

 

 -

 

 -

 

 -

 

 -

 

 -

Stock based compensation, net

 -

 

746 

 

 -

 

 -

 

 -

 

746 

Tax effect of restricted stock vestings

 -

 

130 

 

 -

 

 -

 

 -

 

130 

Repurchase of common stock

(21,745)

 

 -

 

(318)

 

 -

 

 -

 

(318)

Dividends paid

 -

 

 -

 

 -

 

(2,105)

 

 -

 

(2,105)

Balance, March 31, 2015

21,738,501 

$

710,241 

$

(103,445)

$

(393,193)

$

(2,466)

$

211,137 

 

 

 

 

 

 

 

 

 

 

 

See "Notes to Unaudited Condensed Consolidated Financial Statements."

 

 

 

 

6

 


 

 

 

 

GUARANTY BANCORP AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

(In thousands)

Cash flows from operating activities:

 

 

 

 

 

Net income

$

5,084 

 

$

3,542 

Reconciliation of net income to net cash from operating activities:

 

 

 

 

 

Depreciation and amortization

 

1,144 

 

 

1,172 

Provision (credit) for loan losses

 

(23)

 

 

(6)

Stock compensation, net

 

746 

 

 

459 

Gain on sale of securities

 

 -

 

 

(25)

Gain on sale of SBA loans

 

(280)

 

 

(137)

Origination of SBA loans with intent to sell

 

(2,718)

 

 

(1,683)

Proceeds from the sale of SBA loans originated with intent to sell

 

2,642 

 

 

1,872 

Gain, net and valuation adjustments on real estate owned

 

 -

 

 

(8)

Other

 

144 

 

 

569 

Net change in:

 

 

 

 

 

Other assets

 

2,065 

 

 

1,095 

Interest payable and other liabilities

 

(2,294)

 

 

(1,775)

Net cash from operating activities

 

6,510 

 

 

5,075 

Cash flows from investing activities:

 

 

 

 

 

Activity in available for sale securities:

 

 

 

 

 

Sales, maturities, prepayments and calls

 

11,409 

 

 

37,615 

Purchases

 

(8,561)

 

 

(26,133)

Activity in held to maturity securities and bank stocks:

 

 

 

 

 

Maturities, prepayments and calls

 

3,270 

 

 

686 

Purchases

 

(5,057)

 

 

(18,318)

Loan originations net of principal collections

 

(13,306)

 

 

(40,856)

Purchase of bank-owned life insurance contracts

 

(5,000)

 

 

 -

Proceeds from sales of other real estate owned and foreclosed assets

 

 -

 

 

82 

Proceeds from sale of SBA loans transferred to held for sale

 

207 

 

 

 -

Additions to premises and equipment

 

(3,112)

 

 

(39)

Net cash from investing activities

 

(20,150)

 

 

(46,963)

Cash flows from financing activities:

 

 

 

 

 

Net change in deposits

 

36,557 

 

 

4,553 

Net change in borrowings on Federal Home Loan Bank line of credit

 

(11,700)

 

 

43,017 

Cash dividends on common stock

 

(2,105)

 

 

(1,046)

Net change in repurchase agreements and federal funds purchased

 

(9,586)

 

 

2,761 

Repurchase of common stock

 

(318)

 

 

(163)

Net cash from financing activities

 

12,848 

 

 

49,122 

Net change in cash and cash equivalents

 

(792)

 

 

7,234 

Cash and cash equivalents, beginning of period

 

32,441 

 

 

28,077 

Cash and cash equivalents, end of period

$

31,649 

 

$

35,311 

 

 

 

 

 

 

Supplemental disclosure of noncash activities:

 

 

 

 

 

Reclassification of available for sale securities into held to maturity

$

49,084 

 

$

 -

Securities purchased, not yet settled

 

2,284 

 

 

-

 

 

See "Notes to Unaudited Condensed Consolidated Financial Statements."

 

7

 


 

 

(1)

Organization, Operations and Basis of Presentation

 

Guaranty Bancorp is a bank holding company registered under the Bank Holding Company Act of 1956, as amended, and headquartered in Colorado.

 

The Company’s principal business is to serve as a holding company for its bank subsidiary, Guaranty Bank and Trust Company, referred to as the “Bank”.

 

References to “Company,” “us,” “we,” and “our” refer to Guaranty Bancorp on a consolidated basis. References to “Guaranty Bancorp” or to the “holding company” refer to the parent company on a stand-alone basis.

 

The Bank is a full-service community bank offering an array of banking products and services to the communities it serves along the Front Range of Colorado including: accepting time and demand deposits, originating commercial loans, real estate loans (including jumbo mortgages), Small Business Administration (“SBA”) guaranteed loans and consumer loans. The Bank, together with its wholly owned subsidiaries Private Capital Management, LLC (“PCM”) and Cherry Hills Investment Advisors, Inc. (“CHIA”), provide wealth management services, including private banking, investment management and trust services. Substantially all of the Bank’s loans are secured by specific items of collateral, including business assets, commercial and residential real estate, which include land or improved land and consumer assets. Commercial loans are generally expected to be repaid from cash flow from the operations of businesses that have taken out the loans. There are no significant concentrations of loans to any one industry or customer. The ability of customers to repay their loans is strongly correlated to general economic conditions prevailing in Colorado, including the strength of the local real estate market, among other factors. 

 

(a)Basis of Presentation

 

The accounting and reporting policies of the Company conform to generally accepted accounting principles in the United States of America. All material intercompany balances and transactions have been eliminated in consolidation. The Company’s financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of its financial position and results of operations for the periods presented. All such adjustments are of a normal and recurring nature. Subsequent events have been evaluated through the date of financial statement issuance.

 

Certain information and note disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The interim operating results presented in these financial statements are not necessarily indicative of operating results for the full year. For further information, refer to the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K, for the year ended December 31, 2014.

 

(b)Use of Estimates

 

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated balance sheets and income and expense for the periods presented. Actual results could differ significantly from those estimates.

 

(c)Loans and Loan Commitments

 

The Company extends commercial, real estate, agricultural and consumer loans to customers. A substantial portion of the loan portfolio consists of commercial and real estate loans made to borrowers located throughout the Front Range of Colorado. The ability of the Company’s borrowers to honor their contracts is generally dependent upon the real estate and general economic conditions prevailing in Colorado, among other factors.

 

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding unpaid principal balances, adjusted for charge-offs, the allowance for

8

 


 

 

loan losses and any deferred fees or costs. Accounting for loans is performed consistently across all portfolio segments and classes.

 

A portfolio segment is defined in accounting guidance as the level at which an entity develops and documents a systematic methodology to determine its allowance for loan losses. A class is defined in accounting guidance as a group of loans having similar initial measurement attributes, risk characteristics and methods for monitoring and assessing risk.

 

Interest income is accrued on the unpaid principal balance of the Company’s loans. Loan origination fees, net of direct origination costs, are deferred and recognized as an adjustment to the related loan yield using the effective interest method without anticipating prepayments.

 

The accrual of interest on loans is discontinued (and the loan is put on nonaccrual status) at the time the loan is 90 days past due unless the loan is well secured and in process of collection. The time at which a loan enters past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off prior to the date on which they would otherwise enter past due status if collection of principal or interest is considered doubtful. The interest on a nonaccrual loan is accounted for using the cash-basis method until the loan qualifies for a return to the accrual basis method, and any payments received on a nonaccrual loan are applied first to the principal balance of the loan. A loan is returned to accrual status after the delinquent borrower’s financial condition has improved, when all the principal and interest amounts contractually due are brought current and when the likelihood of the borrower making future timely payments are reasonably assured.

 

Financial instruments include off‑balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The face amount of each item represents our total exposure to loss with respect to the item, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

 

(d)Allowance for Loan Losses and Allowance for Unfunded Commitments

 

The allowance for loan losses or “the allowance” is a valuation allowance for probable incurred loan losses and is reported as a reduction of outstanding loan balances.

 

Management evaluates the amount of the allowance on a regular basis based upon its periodic review of the collectability of the Company’s loans. Factors affecting the collectability of the loans include historical loss experience, the nature and volume of the loan portfolio, adverse situations that may affect borrowers’ ability to repay, estimated value of any underlying collateral, prevailing economic conditions and current organizational conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Management maintains the allowance at a level that it deems appropriate to adequately provide for known and inherent risks in the loan portfolio and other extensions of credit. The Company’s methodology for estimating the allowance is consistent across all portfolio segments and classes of loans.

 

Loans deemed to be uncollectible are charged off and deducted from the allowance. The Company’s loan portfolio primarily consists of non-homogeneous commercial and real estate loans where charge-offs are considered on a loan-by-loan basis based on the facts and circumstances, including management’s evaluation of collateral values in comparison to book values on collateral-dependent loans. Charge-offs on smaller balance unsecured homogenous type loans such as overdrafts and ready reserves are recognized by the time the loan in question is 90 days past due. The provision for loan losses and recoveries on loans previously charged-off are added to the allowance.

 

The allowance consists of both specific and general components. The specific component relates to loans that are individually classified as impaired. All loans are subject to individual impairment evaluation should the pertinent facts and circumstances suggest that such evaluation is necessary. Factors considered by management in determining impairment include the loan’s payment status and the probability of collecting scheduled principal and interest payments when they become due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the

9

 


 

 

scheduled payments of principal or interest when due according to the contractual terms of the original underlying loan agreement. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. If a loan is impaired, a portion, if any, of the allowance is allocated so that the loan is reported at the present value of estimated future cash flows using the loan’s original contractual rate or at the fair value of collateral, less estimated selling costs, if repayment is expected solely from collateral.

 

The general component of the allowance covers all other loans not specifically identified as impaired and is calculated based on losses recognized by portfolio segment during the current credit cycle and adjusted based on management’s evaluation of various qualitative factors. In performing this calculation, loans are aggregated into one of three portfolio segments: Real Estate, Consumer and Commercial & Other. An assessment of risks impacting loans in each of these portfolio segments is performed and qualitative adjustment factors, which adjust the historical loss rate are estimated. These qualitative adjustment factors consider current conditions relative to conditions present throughout the current credit cycle in the following areas: credit quality, loan class concentration levels, economic conditions, loan growth dynamics and organizational conditions. The historical loss experience is adjusted for management’s estimate of the impact of these factors based on the risks present for each portfolio segment.

 

The Company recognizes a liability in relation to unfunded commitments that is intended to represent the estimated future losses on the commitments. In calculating the amount of this liability, management considers the amount of the Company’s off-balance sheet commitments, estimated utilization factors and loan specific risk factors. The Company’s liability for unfunded commitments is calculated quarterly and is included under “other liabilities” in the consolidated balance sheet.

 

(e)Other Real Estate Owned and Foreclosed Assets

 

Assets acquired through,  or in lieu of,  loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. If the asset’s fair value declines subsequent to the asset’s acquisition, a valuation allowance is recorded through expense. Operating revenues and expenses of these assets and reductions in the fair value of the assets are included in noninterest expense. Gains and losses on their disposition are also included in noninterest expense.

 

(f)Other Intangible Assets

 

Intangible assets acquired in a business combination are amortized over their estimated useful lives to their estimated residual values and evaluated for impairment whenever changes in circumstances indicate that such an evaluation is necessary.

 

Core deposit intangible assets (“CDI assets”) are recognized at the time of their acquisition based on valuations prepared by independent third parties or other estimates of fair value. In preparing such valuations, management considers variables such as deposit servicing costs, attrition rates, and market discount rates. CDI assets are amortized to expense over their useful lives, ranging from 10 years to 15 years.

 

Customer relationship intangible assets are recognized at the time of their acquisition based upon management’s estimate of their fair value. In preparing their valuation, management considers variables such as growth in existing customer base, attrition rates and market discount rates. The customer relationship intangible assets are amortized to expense over their estimated useful life, which has been estimated to be ten years. As of March 31, 2015 the Company had recognized two customer relationship intangible assets as a result of the acquisitions of PCM on July 31, 2012 and CHIA on July 16, 2014.  

 

(g) Impairment of Long-Lived Assets

Long-lived assets, such as premises and equipment, and finite-lived intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying value of the asset to the estimated undiscounted future cash flows expected to

10

 


 

 

be generated by the asset. If the carrying value of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying value of the asset exceeds the fair value of the asset, less costs to sell.

 

Assets to be disposed of are reported at the lower of their carrying value or fair value less costs to sell, and are no longer depreciated. In 2012, the Company recorded an impairment related to two bank buildings that were later transferred to assets held for sale. At March 31, 2015, one of these properties remained held for sale and is included in “other assets” in the consolidated balance sheet. The Company recognized an additional $186,000 in impairment charges on this property during 2014 in response to changing market conditions. No additional impairment was recognized on this property during the first quarter 2015.    

 

(h) Derivative Instruments

 

The Company records all derivatives on its consolidated balance sheets at fair value. At the inception of a derivative contract, the Company designates the derivative as one of three types based on the Company’s intentions and belief as to the derivative’s likely effectiveness as a hedge. These three types are (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value hedge”), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), or (3) an instrument with no hedging designation (“stand-alone derivative”). To date, the Company has entered into cash flow hedges and stand-alone derivative agreements but has not entered into any fair value hedges. For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects earnings. Any portion of the cash flow hedge not deemed highly effective in hedging the changes in expected cash flows of the hedged item are recognized immediately in current earnings. Changes in the fair value of derivatives that do not qualify for hedge accounting are reported currently in earnings, as noninterest income.

 

The Company formally documents the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions, at the inception of the derivative contract. This documentation includes linking cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the hedge is highly effective in offsetting changes in cash flows of the hedged items.

 

(i)Stock Incentive Plan

 

The Company’s Amended and Restated 2005 Stock Incentive Plan (the “Incentive Plan”) provided for the grant of stock options, stock awards, stock unit awards, performance stock awards, stock appreciation rights, and other equity-based awards representing up to a total of 1,700,000 shares of voting common stock to key employees, nonemployee directors, consultants and prospective employees. The Incentive Plan expired by its terms on April 4, 2015. On March 4, 2015 the Company’s Board of Directors approved the Guaranty Bancorp 2015 Long-Term Incentive Plan, subject to stockholder approval at the annual meeting of stockholders, scheduled for May 5, 2015.

 

As of March 31, 2015, the Company had only granted stock awards, which will remain outstanding in accordance with their terms despite the expiration of the Incentive Plan. The Company recognizes stock compensation expense for services received in a share-based payment transaction over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. The compensation cost of employee and director services received in exchange for stock awards is based on the grant date fair value of the award, as determined by quoted market prices. Stock compensation expense is recognized using an estimated forfeiture rate, adjusted as necessary to reflect actual forfeitures. The Company has issued stock awards that vest based on the passage of time over service periods of one to five years (in some cases vesting in annual installments, in other cases cliff vesting at the end of the service period), and other stock awards that vest contingent upon the satisfaction of certain performance conditions. The last date on which outstanding performance stock awards may vest is December 31, 2018. At March 31, 2015,  certain performance stock awards were expected to vest prior to their expiration, while certain performance awards were not expected to

11

 


 

 

vest prior to their expiration, based on current projections in comparison to performance conditions. Should these expectations change, additional expense could be recorded or reversed in future periods.

 

(j)Stock Repurchase Plan

 

On February 3, 2015, the Company’s Board of Directors authorized the extension of the expiration date of the Company’s share repurchase program originally announced in April 2014. The repurchase program had been scheduled to expire 12 months from the date of its announcement, and as extended, the program is scheduled to expire on April 2, 2016. Pursuant to the program, the Company may repurchase up to 1,000,000 shares of its voting common stock, par value $0.001 per share. As of the date of this filing, the Company had not repurchased any shares under the program.

 

(k)    Income Taxes

 

Income tax expense is the total of the current year’s income tax payable or refundable and the increase or decrease in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period of the enactment date.

 

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that the Company will not realize some portion of, or the entire deferred tax asset. In assessing the Company’s likelihood of realizing deferred tax assets, management evaluates both positive and negative evidence, including the existence of any cumulative losses in the current year and the prior two years, the amount of taxes paid in available carry-back years, forecasts of future income, taking into account applicable tax planning strategies, and assessments of current and future economic and business conditions. Management performs this analysis quarterly and adjusts as necessary. At March 31, 2015 and December 31, 2014, the Company had a net deferred tax asset of $9,723,000 and $10,988,000, respectively, which includes the deferred tax asset associated with the unrealized gain (loss) on securities and the fluctuation of fair value on the Company’s interest rate swaps designated as cash flow hedges. After analyzing the composition of and changes in the deferred tax assets and liabilities and considering the Company’s forecasted future taxable income and various tax planning strategies management determined that as of March 31, 2015 it was “more likely than not” that the net deferred tax asset would be fully realized. As a result, there was no valuation allowance with respect to the Company’s deferred tax asset as of March 31, 2015 or December 31, 2014.

 

The Company and the Bank are subject to U.S. federal income tax and State of Colorado income tax. The Company is no longer subject to examination by Federal or State taxing authorities for years before 2010 except to the extent of the amount of the 2010 carryback claim for a refund filed in 2011 with respect to 2008. The Company recognizes interest related to income tax matters as interest expense and penalties related to income tax matters as other noninterest expense. At March 31, 2015 and December 31, 2014, the Company did not have any amounts accrued for interest or penalties.

 

As of March 31, 2015 and December 31, 2014 the Company maintained an immaterial unrecognized tax benefit. If this benefit were to be recognized in a future period both our tax expense and effective tax rate would be reduced. The Company does not expect the total amount of unrecognized tax benefits to materially increase or decrease in the next 12 months.

 

(l)Earnings per Common Share

 

Basic earnings per common share represents the earnings allocable to common stockholders divided by the weighted average number of common shares outstanding during the period. Dilutive common shares that may be issued by the Company represent unvested stock awards subject to a service or performance condition.

12

 


 

 

Earnings per common share have been computed based on the following calculation of weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

2015

 

2014

 

 

 

 

Average common shares outstanding

21,037,325 

 

20,936,295 

Effect of dilutive unvested stock grants (1)

128,108 

 

92,427 

Average shares outstanding for calculated

 

 

 

diluted earnings per common share

21,165,433 

 

21,028,722 

_____________

 

 

 

 

(1)Unvested stock grants representing 676,017 shares at March 31, 2015 had a dilutive impact of 128,108 shares in the diluted earnings per share calculation for the three months ended March 31, 2015.  Unvested stock grants representing 745,406 shares at March 31, 2014 had a dilutive impact of 92,427 shares in the diluted earnings per share calculation for the three months ended March 31, 2014.

 

 (m)    Recently Issued Accounting Standards

 

Recently Issued but not yet Effective Accounting Standards:

 

In May 2014 in an effort to foster additional consistency in recognizing revenue the FASB issued accounting standards update 2014-09 Revenue from Contracts with Customers. The main provisions of the update require the identification of performance obligations within a contract and require the recognition of revenue based on a stand-alone allocation of contract revenue to each performance obligation. Performance obligations may be satisfied and revenue recognized over a period of time if: (i) the customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs, or (ii) the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or (iii) the entity’s performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right to payment for performance completed to date. Initially the amendments of the update were to be effective for public entities beginning with interim and annual reporting periods beginning after December 15, 2016, however the FASB recently voted to defer the implementation for one year, although that change has not yet been finalized. Management does not expect the impacts of this update to have a material impact on the Company’s financial position, results of operations or cash flows.

 

 (n)  Reclassifications

 

Certain reclassifications of prior year balances have been made to conform to the current year presentation. These reclassifications had no impact on the Company’s consolidated financial position, results of operations or net change in cash and cash equivalents.

13

 


 

 

(2)Securities

 

The fair value of available for sale debt securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) (“AOCI”) were as follows at the dates presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

 

Fair
Value

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Amortized
Cost

 

 

(In thousands)

Securities available for sale:

 

 

 

 

 

 

 

 

State and municipal

$

34,723 

$

$

(11)

$

34,728 

Mortgage-backed - agency / residential

 

165,374 

 

2,098 

 

(1,184)

 

164,460 

Mortgage-backed - private / residential

 

411 

 

 

 -

 

407 

Trust preferred

 

18,615 

 

363 

 

(1,748)

 

20,000 

Corporate

 

68,053 

 

1,526 

 

 -

 

66,527 

Collateralized loan obligations

 

8,524 

 

49 

 

 -

 

8,475 

Total securities available for sale

$

295,700 

$

4,046 

$

(2,943)

$

294,597 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

 

Fair
Value

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Amortized
Cost

 

 

(In thousands)

Securities available for sale:

 

 

 

 

 

 

 

 

State and municipal

$

49,399 

$

71 

$

(293)

$

49,621 

Mortgage-backed - agency / residential

 

201,902 

 

2,027 

 

(2,063)

 

201,938 

Mortgage-backed - private / residential

 

412 

 

 -

 

 -

 

412 

Asset-backed

 

8,708 

 

 -

 

(280)

 

8,988 

Trust preferred

 

18,075 

 

175 

 

(2,100)

 

20,000 

Corporate

 

64,717 

 

956 

 

(49)

 

63,810 

Collateralized loan obligations

 

2,933 

 

 -

 

 -

 

2,933 

Total securities available for sale

$

346,146 

$

3,229 

$

(4,785)

$

347,702 

 

 

During the first quarter of 2015, the Company reclassified, at fair value, approximately $49,084,000 in available for sale mortgage-backed,  asset-backed and municipal securities to the held to maturity category. The related unrealized pre-tax losses of approximately $750,000 remained in accumulated other comprehensive income (loss) and will be amortized over the remaining life of the securities, offsetting the related amortization of discount on the transferred securities. No gains or losses were recognized at the time of reclassification. 

14

 


 

 

The carrying amount, unrecognized gains/losses and fair value of securities held to maturity were as follows at the dates presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair
Value

 

Gross
Unrecognized
Gains

 

Gross
Unrecognized
Losses

 

Amortized
Cost

 

 

(In thousands)

March 31, 2015:

 

 

 

 

 

 

 

 

State and municipal

$

56,244 

$

1,064 

$

(113)

$

55,293 

Mortgage-backed - agency / residential

 

67,460 

 

1,956 

 

 -

 

65,504 

Asset-backed

 

21,570 

 

409 

 

(11)

 

21,172 

 

$

145,274 

$

3,429 

$

(124)

$

141,969 

 

 

 

 

 

 

 

 

 

December 31, 2014:

 

 

 

 

 

 

 

 

State and municipal

$

36,051 

$

923 

$

(95)

$

35,223 

Mortgage-backed - agency / residential

 

41,734 

 

1,203 

 

 -

 

40,531 

Asset-backed

 

13,024 

 

264 

 

 -

 

12,760 

 

$

90,809 

$

2,390 

$

(95)

$

88,514 

 

 

The proceeds from sales and calls of securities and the associated gains are listed below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

2015

 

2014

 

 

 

 

 

 

 

(In thousands)

Proceeds

$

2,868 

$

8,367 

Gross gains

 

16 

 

42 

Gross losses

 

(16)

 

(17)

Net tax expense related to gains

 

 

 

 

(losses) on sale

 

 -

 

10 

 

 

The amortized cost and estimated fair value of available for sale and held to maturity debt securities by contractual maturity at March 31, 2015 are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties. Securities not due at a single maturity date are presented separately.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for Sale

 

 

Fair Value

 

Amortized Cost

 

 

(In thousands)

Securities available for sale:

 

 

 

 

Due in one year or less

$

2,939 

$

2,885 

Due after one year through five years

 

46,819 

 

45,934 

Due after five years through ten years

 

18,583 

 

17,996 

Due after ten years

 

53,050 

 

54,440 

Total AFS, excluding mortgage-backed (MBS)

 

 

 

 

and collateralized loan obligations

 

121,391 

 

121,255 

Mortgage-backed and collateralized

 

 

 

 

loan obligations

 

174,309 

 

173,342 

Total securities available for sale

$

295,700 

$

294,597 

 

15

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity

 

 

Fair Value

 

Amortized Cost

 

 

(In thousands)

Securities held to maturity:

 

 

 

 

Due in one year or less

$

1,608 

$

1,607 

Due after one year through five years

 

2,584 

 

2,557 

Due after five years through ten years

 

17,000 

 

16,736 

Due after ten years

 

35,052 

 

34,393 

Total HTM, excluding MBS and asset-backed

 

56,244 

 

55,293 

Mortgage-backed and asset-backed

 

89,030 

 

86,676 

Total securities held to maturity

$

145,274 

$

141,969 

 

 

 

 

 

 

 

The following tables present the fair value and the unrealized loss on securities that were temporarily impaired as of March 31, 2015 and December 31, 2014, aggregated by major security type and length of time in a continuous unrealized loss position:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

 

Fair
Value

 

 

Unrealized
Losses

 

 

Fair
Value

 

 

Unrealized
Losses

 

 

Fair
Value

 

 

Unrealized
Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Description of securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State and municipal

$

1,455 

 

$

(11)

 

$

 -

 

$

 -

 

$

1,455 

 

$

(11)

Mortgage-backed - agency /

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

residential

 

46,464 

 

 

(767)

 

 

29,352 

 

 

(417)

 

 

75,816 

 

 

(1,184)

Trust preferred

 

 -

 

 

 -

 

 

8,253 

 

 

(1,748)

 

 

8,253 

 

 

(1,748)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State and municipal

 

5,935 

 

 

(46)

 

 

12,505 

 

 

(303)

 

 

18,440 

 

 

(349)

Mortgage-backed - agency /

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

residential

 

 -

 

 

 -

 

 

45,307 

 

 

(289)

 

 

45,307 

 

 

(289)

Asset-backed

 

 -

 

 

 -

 

 

21,568 

 

 

(438)

 

 

21,568 

 

 

(438)

Total temporarily impaired

$

53,854 

 

$

(824)

 

$

116,985 

 

$

(3,195)

 

$

170,839 

 

$

(4,019)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

 

Fair
Value

 

 

Unrealized
Losses

 

 

Fair
Value

 

 

Unrealized
Losses

 

 

Fair
Value

 

 

Unrealized
Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Description of securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State and municipal

$

 -

 

$

 -

 

$

12,515 

 

$

(293)

 

$

12,515 

 

$

(293)

Mortgage-backed - agency /

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

residential

 

23,407 

 

 

(92)

 

 

103,429 

 

 

(1,971)

 

 

126,836 

 

 

(2,063)

Asset-backed

 

 -

 

 

 -

 

 

8,708 

 

 

(280)

 

 

8,708 

 

 

(280)

Trust preferred

 

 -

 

 

 -

 

 

7,900 

 

 

(2,100)

 

 

7,900 

 

 

(2,100)

Corporate

 

11,505 

 

 

(49)

 

 

 -

 

 

 -

 

 

11,505