10-Q 1 gbnk-20150930x10q.htm 10-Q 10-Q 20150930 Q3

 

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 September 30, 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 October 27, 2015, there were 21,726,840 shares of the registrant’s common stock outstanding, consisting of 20,707,840 shares of voting common stock, of which 649,913 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

  

36 

 

 

 

ITEM 3.

  

Quantitative and Qualitative Disclosures About Market Risk

  

59 

 

 

 

ITEM 4.

  

Controls and Procedures

  

61 

 

 

PART II—OTHER INFORMATION

  

62 

 

 

 

ITEM 1.

  

Legal Proceedings

  

62 

 

 

 

ITEM 1A.

  

Risk Factors

  

62 

 

 

 

ITEM 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

  

62 

 

 

 

ITEM 3.

  

Defaults Upon Senior Securities

  

62 

 

 

 

ITEM 4.

  

Mine Safety Disclosure

  

62 

 

 

 

ITEM 5.

  

Other Information

  

62 

 

 

 

ITEM 6.

  

Exhibits

  

63 

 

 

 

 

 

2

 


 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Unaudited Condensed Consolidated Financial Statements

 

GUARANTY BANCORP AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

2015

 

2014

 

 

(In thousands, except share and per share data)

Assets

 

 

 

 

Cash and due from banks

$

23,750 

$

32,441 

 

 

 

 

 

Securities available for sale, at fair value

 

276,353 

 

346,146 

Securities held to maturity (fair value of $144,021 and $90,809 at

 

 

 

 

September 30, 2015 and December 31, 2014)

 

140,928 

 

88,514 

Bank stocks, at cost

 

16,018 

 

14,822 

Total investments

 

433,299 

 

449,482 

 

 

 

 

 

Loans held for sale

 

 

 -

 

 

 

 

 

Loans, held for investment, net of deferred costs and fees

 

1,726,143 

 

1,541,434 

Less allowance for loan losses

 

(22,890)

 

(22,490)

Net loans, held for investment

 

1,703,253 

 

1,518,944 

 

 

 

 

 

Premises and equipment, net

 

48,564 

 

45,937 

Other real estate owned and foreclosed assets

 

1,371 

 

2,175 

Other intangible assets, net

 

5,668 

 

7,154 

Bank-owned life insurance

 

48,537 

 

42,456 

Other assets

 

21,180 

 

26,189 

Total assets

$

2,285,630 

$

2,124,778 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

Liabilities:

 

 

 

 

Deposits:

 

 

 

 

Noninterest-bearing demand

$

683,797 

$

654,051 

Interest-bearing demand and NOW

 

405,092 

 

326,748 

Money market

 

369,023 

 

374,063 

Savings

 

144,602 

 

138,588 

Time

 

244,815 

 

191,874 

Total deposits

 

1,847,329 

 

1,685,324 

 

 

 

 

 

Securities sold under agreement to repurchase and federal funds purchased

 

30,151 

 

33,508 

Federal Home Loan Bank term notes

 

95,000 

 

20,000 

Federal Home Loan Bank line of credit borrowing

 

56,300 

 

140,300 

Subordinated debentures

 

25,774 

 

25,774 

Interest payable and other liabilities

 

12,273 

 

12,933 

Total liabilities

 

2,066,827 

 

1,917,839 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

Common stock (1)

 

24 

 

24 

Additional paid-in capital - common stock

 

711,586 

 

709,341 

Accumulated deficit

 

(385,930)

 

(396,172)

Accumulated other comprehensive loss

 

(3,421)

 

(3,127)

Treasury stock, at cost, 2,270,463 and 2,248,033 shares, respectively

 

(103,456)

 

(103,127)

Total stockholders’ equity

 

218,803 

 

206,939 

Total liabilities and stockholders’ equity

$

2,285,630 

$

2,124,778 

____________________

 

 

 

 

(1)

Common stock—$0.001 par value; 30,000,000 shares authorized; 23,998,665 shares issued and 21,728,202 shares outstanding at September 30, 2015 (includes 651,275 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

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2015

 

2014

 

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands, except share and per share data)

Interest income:

 

 

 

 

 

 

 

 

 

Loans, including costs and fees

$

17,829 

$

16,336 

 

$

51,749 

$

46,508 

Investment securities:

 

 

 

 

 

 

 

 

 

Taxable

 

2,064 

 

2,287 

 

 

6,265 

 

6,995 

Tax-exempt

 

719 

 

691 

 

 

2,133 

 

2,007 

Dividends

 

249 

 

214 

 

 

724 

 

622 

Federal funds sold and other

 

 

 

 

 

Total interest income

 

20,863 

 

19,529 

 

 

60,876 

 

56,136 

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

866 

 

647 

 

 

2,284 

 

1,797 

Securities sold under agreement to repurchase and

 

 

 

 

 

 

 

 

 

federal funds purchased

 

11 

 

 

 

31 

 

27 

Borrowings

 

375 

 

862 

 

 

832 

 

2,580 

Subordinated debentures

 

205 

 

202 

 

 

606 

 

599 

Total interest expense

 

1,457 

 

1,720 

 

 

3,753 

 

5,003 

Net interest income

 

19,406 

 

17,809 

 

 

57,123 

 

51,133 

Provision (credit) for loan losses

 

14 

 

(3)

 

 

104 

 

15 

Net interest income, after provision for loan losses

 

19,392 

 

17,812 

 

 

57,019 

 

51,118 

Noninterest income:

 

 

 

 

 

 

 

 

 

Deposit service and other fees

 

2,309 

 

2,290 

 

 

6,682 

 

6,708 

Investment management and trust

 

1,292 

 

1,279 

 

 

3,964 

 

3,149 

Increase in cash surrender value of life insurance

 

447 

 

291 

 

 

1,316 

 

877 

Gain on sale of securities

 

 -

 

 

 

 -

 

28 

Gain on sale of SBA loans

 

232 

 

186 

 

 

681 

 

351 

Other

 

119 

 

289 

 

 

275 

 

720 

Total noninterest income

 

4,399 

 

4,338 

 

 

12,918 

 

11,833 

Noninterest expense:

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

8,318 

 

8,135 

 

 

24,921 

 

24,332 

Occupancy expense

 

1,487 

 

1,583 

 

 

4,814 

 

4,764 

Furniture and equipment

 

740 

 

693 

 

 

2,206 

 

2,061 

Amortization of intangible assets

 

495 

 

670 

 

 

1,486 

 

1,852 

Other real estate owned, net

 

(31)

 

147 

 

 

64 

 

225 

Insurance and assessments

 

604 

 

594 

 

 

1,795 

 

1,779 

Professional fees

 

838 

 

890 

 

 

2,520 

 

2,593 

Impairment of long-lived assets

 

 -

 

 -

 

 

122 

 

110 

Other general and administrative

 

2,415 

 

2,447 

 

 

7,164 

 

6,996 

Total noninterest expense

 

14,866 

 

15,159 

 

 

45,092 

 

44,712 

Income before income taxes

 

8,925 

 

6,991 

 

 

24,845 

 

18,239 

Income tax expense

 

2,923 

 

2,320 

 

 

8,282 

 

5,942 

Net income

$

6,002 

$

4,671 

 

$

16,563 

$

12,297 

 

 

 

 

 

 

 

 

 

 

Earnings per common share–basic:

$

0.28 

$

0.22 

 

$

0.79 

$

0.59 

Earnings per common share–diluted: 

 

0.28 

 

0.22 

 

 

0.78 

 

0.58 

Dividends declared per common share: 

 

0.10 

 

0.05 

 

 

0.30 

 

0.15 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding-basic:

 

21,076,380 

 

20,966,179 

 

 

21,061,445 

 

20,954,046 

Weighted average common shares outstanding-diluted:

 

21,224,989 

 

21,089,221 

 

 

21,215,435 

 

21,070,895 

 

See "Notes to Unaudited Condensed Consolidated Financial Statements."

4

 


 

 

GUARANTY BANCORP AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

6,002 

 

$

4,671 

 

$

16,563 

 

$

12,297 

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

 

1,706 

 

 

(1,074)

 

 

906 

 

 

8,845 

Income tax effect

 

(648)

 

 

408 

 

 

(344)

 

 

(3,362)

Change in unamortized loss on available for sale securities

 

 

 

 

 

 

 

 

 

 

 

reclassified into held to maturity securities

 

108 

 

 

74 

 

 

307 

 

 

110 

Income tax effect

 

(41)

 

 

(28)

 

 

(117)

 

 

(42)

Reclassification adjustment for net losses (gains) included

 

 

 

 

 

 

 

 

 

 

 

in net income during the period

 

 -

 

 

(3)

 

 

 -

 

 

(28)

Income tax effect

 

 -

 

 

 

 

 -

 

 

11 

Change in fair value of derivatives during the period

 

(1,290)

 

 

148 

 

 

(1,769)

 

 

(1,020)

Income tax effect

 

490 

 

 

(56)

 

 

672 

 

 

388 

Reclassification adjustment for impact on interest

 

 

 

 

 

 

 

 

 

 

 

expense caused by hedged borrowings

 

82 

 

 

 -

 

 

82 

 

 

 -

Income tax effect

 

(31)

 

 

 -

 

 

(31)

 

 

 -

Other comprehensive income (loss)

 

376 

 

 

(530)

 

 

(294)

 

 

4,902 

Total comprehensive income

$

6,378 

 

$

4,141 

 

$

16,269 

 

$

17,199 

 

 

 

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 data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock
Shares Outstanding

 

Common Stock
and Additional
Paid-in Capital

 

Treasury
Stock

 

Accumulated
Deficit

 

Accumulated Other
Comprehensive Loss

 

Totals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2014

21,303,707 

$

706,514 

$

(102,672)

$

(405,494)

$

(8,954)

$

189,394 

Net income

 -

 

 -

 

 -

 

12,297 

 

 -

 

12,297 

Other comprehensive income

 -

 

 -

 

 -

 

 -

 

4,902 

 

4,902 

Stock compensation awards, net of forfeitures

423,513 

 

 -

 

 -

 

 -

 

 -

 

 -

Stock based compensation, net

 -

 

1,767 

 

 -

 

 -

 

 -

 

1,767 

Tax effect of restricted stock vestings

 -

 

316 

 

 -

 

 -

 

 -

 

316 

Repurchase of common stock

(13,105)

 

 -

 

(173)

 

 -

 

 -

 

(173)

Dividends paid

 -

 

 -

 

 -

 

(3,142)

 

 -

 

(3,142)

Balance, September 30, 2014

21,714,115 

$

708,597 

$

(102,845)

$

(396,339)

$

(4,052)

$

205,361 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2015

21,628,873 

$

709,365 

$

(103,127)

$

(396,172)

$

(3,127)

$

206,939 

Net income

 -

 

 -

 

 -

 

16,563 

 

 -

 

16,563 

Other comprehensive loss

 -

 

 -

 

 -

 

 -

 

(294)

 

(294)

Stock compensation awards, net of forfeitures

121,759 

 

 -

 

 -

 

 -

 

 -

 

 -

Stock based compensation, net

 -

 

2,094 

 

 -

 

 -

 

 -

 

2,094 

Tax effect of restricted stock vestings

 -

 

151 

 

 -

 

 -

 

 -

 

151 

Repurchase of common stock

(22,430)

 

 -

 

(329)

 

 -

 

 -

 

(329)

Dividends paid

 -

 

 -

 

 -

 

(6,321)

 

 -

 

(6,321)

Balance, September 30, 2015

21,728,202 

$

711,610 

$

(103,456)

$

(385,930)

$

(3,421)

$

218,803 

 

 

 

 

 

 

 

 

 

 

 

See "Notes to Unaudited Condensed Consolidated Financial Statements."

 

 

 

 

6

 


 

 

 

 

GUARANTY BANCORP AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

(In thousands)

Cash flows from operating activities:

 

 

 

 

 

Net income

$

16,563 

 

$

12,297 

Reconciliation of net income to net cash from operating activities:

 

 

 

 

 

Depreciation and amortization

 

3,478 

 

 

3,793 

Provision for loan losses

 

104 

 

 

15 

Impairment of long-lived assets

 

122 

 

 

110 

Stock compensation, net

 

2,094 

 

 

1,767 

Gain on sale of securities

 

 -

 

 

(28)

Gain on sale of SBA loans

 

(681)

 

 

(351)

Origination of SBA loans with intent to sell

 

(5,264)

 

 

(3,690)

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

 

7,093 

 

 

4,119 

Loss, net, and valuation adjustments on real estate owned

 

32 

 

 

134 

Other

 

375 

 

 

1,127 

Net change in:

 

 

 

 

 

Other assets

 

2,816 

 

 

(1,356)

Interest payable and other liabilities

 

(855)

 

 

(146)

Net cash from operating activities

 

25,877 

 

 

17,791 

Cash flows from investing activities:

 

 

 

 

 

Activity in available for sale securities:

 

 

 

 

 

Sales, maturities, prepayments and calls

 

29,120 

 

 

58,920 

Purchases

 

(8,561)

 

 

(34,052)

Activity in held to maturity securities and bank stocks:

 

 

 

 

 

Maturities, prepayments and calls

 

15,454 

 

 

12,211 

Purchases

 

(19,566)

 

 

(25,261)

Loan originations net of principal collections

 

(185,738)

 

 

(159,779)

Cash outlays related to acquisition

 

(1,457)

 

 

(2,386)

Purchase of bank-owned life insurance contracts

 

(5,000)

 

 

 -

Proceeds from sale of other assets

 

1,293 

 

 

 -

Proceeds from sales of other real estate owned and foreclosed assets

 

772 

 

 

833 

Proceeds from sale of SBA loans transferred to held for sale

 

589 

 

 

 -

Additions to premises and equipment

 

(4,619)

 

 

(353)

Net cash from investing activities

 

(177,713)

 

 

(149,867)

Cash flows from financing activities:

 

 

 

 

 

Net change in deposits

 

162,005 

 

 

134,141 

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

 

(84,000)

 

 

20,400 

Proceeds from issuance of debt

 

75,000 

 

 

 -

Cash dividends on common stock

 

(6,321)

 

 

(3,142)

Tax effect of restricted stock vesting

 

147 

 

 

 -

Net change in repurchase agreements and federal funds purchased

 

(3,357)

 

 

(610)

Repurchase of common stock

 

(329)

 

 

(173)

Net cash from financing activities

 

143,145 

 

 

150,616 

Net change in cash and cash equivalents

 

(8,691)

 

 

18,540 

Cash and cash equivalents, beginning of period

 

32,441 

 

 

28,077 

Cash and cash equivalents, end of period

$

23,750 

 

$

46,617 

 

 

 

 

 

 

Supplemental disclosure of noncash activities:

 

 

 

 

 

Reclassification of available for sale securities into held to maturity

$

49,084 

 

$

39,365 

 

 

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, commercial and residential real estate loans, 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”), provides 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.

 

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

8

 


 

 

 

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 is 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 probable incurred losses 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 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

9

 


 

 

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. Historical losses are adjusted based on management’s estimate of the impact that each of these factors has 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 September 30, 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 be generated by the asset. If the carrying value of an asset exceeds its estimated undiscounted future cash

10

 


 

 

flows, an impairment charge is recognized for 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. The Company recorded an additional impairment of $122,000 during the second quarter 2015, prior to the sale of the last of these two properties.

 

(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 impacts 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 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. At the Company’s annual meeting of stockholders on May 5, 2015, the Company’s stockholders approved the Guaranty Bancorp 2015 Long-Term Incentive Plan (the “2015 Plan”), which had been previously approved by the Company’s Board of Directors. The 2015 Plan provides 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 935,000 shares of voting common stock to key employees, nonemployee directors, consultants and prospective employees.

 

As of September 30, 2015, the Company had granted stock awards under both the Incentive Plan and the 2015 Plan. All awards issued under the Incentive Plan will remain outstanding in accordance with their terms despite the expiration of the Incentive Plan; however, any awards granted subsequent to the expiration of the Incentive Plan have been, and will continue to be, issued under the 2015 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 September 30, 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 September 30, 2015 and December 31, 2014, the Company had a net deferred tax asset of $8,914,000 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 September 30, 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 September 30, 2015 or December 31, 2014.

 

The Company and the Bank are subject to U.S. federal income tax and state of Colorado income tax. Generally, the Company is no longer subject to examination by Federal taxing authorities for years before 2012 and is no longer subject to examination by the State for years before 2011. The Company recognizes interest related to income tax matters as interest expense and penalties related to income tax matters as other noninterest expense. At September 30, 2015 and December 31, 2014, the Company did not have any amounts accrued for interest or penalties.

 

As of September 30, 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 September 30,

 

Nine Months Ended September 30,

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

Average common shares outstanding

21,076,380 

 

20,966,179 

 

21,061,445 

 

20,954,046 

Effect of dilutive unvested stock grants (1)

148,609 

 

123,042 

 

153,990 

 

116,849 

Average shares outstanding for calculated

 

 

 

 

 

 

 

diluted earnings per common share

21,224,989 

 

21,089,221 

 

21,215,435 

 

21,070,895 

_____________

 

 

 

 

 

 

 

 

(1)Unvested stock grants representing 651,275 shares at September 30, 2015 had a dilutive impact of 148,609 and 153,990 shares in the diluted earnings per share calculation for the three and nine months ended September 30, 2015, respectively. Unvested stock grants representing 746,782 shares at September 30, 2014 had a dilutive impact of 123,042 and 116,849 shares in the diluted earnings per share calculation for the three and nine months ended September 30, 2014.

 

(m)    Recently Issued Accounting Standards

 

Adoption of New Accounting Standards:

 

In June 2014 the FASB issued accounting standards update 2014-11 Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. As a result of the update, repurchase-to-maturity transactions and repurchase agreements executed as a repurchase financings will be accounted for in the same manner as repurchase agreements, namely, as secured borrowings. The update also requires additional disclosures for repurchase agreements and other instruments accounted for as secured borrowings. The provisions of this update became effective for interim and annual periods beginning after December 15, 2014. The requirements of this update have not impacted the Company’s financial position, results of operations or cash flows but rather resulted in enhanced disclosures surrounding securities pledged to the Company’s repurchase agreements.

 

Recently Issued but not yet Effective Accounting Standards:

 

In May 2014, 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. After a recent one-year deferral of the effective date, the amendments of the update are to be effective for public entities beginning with interim and annual reporting periods beginning after December 15, 2017. Management does not expect the requirements 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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2015

 

 

Fair
Value

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Amortized
Cost

 

 

(In thousands)

Securities available for sale:

 

 

 

 

 

 

 

 

State and municipal

$

34,691 

$

$

(16)

$

34,705 

Mortgage-backed - agency / residential

 

148,047 

 

1,886 

 

(702)

 

146,863 

Mortgage-backed - private / residential

 

280 

 

 -

 

(6)

 

286 

Trust preferred

 

17,900 

 

25 

 

(2,125)

 

20,000 

Corporate

 

67,022 

 

1,151 

 

(50)

 

65,921 

Collateralized loan obligations

 

8,413 

 

15 

 

(80)

 

8,478 

Total securities available for sale

$

276,353 

$

3,079 

$

(2,979)

$

276,253 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

September 30, 2015:

 

 

 

 

 

 

 

 

State and municipal

$

55,682 

$

954 

$

(246)

$

54,974 

Mortgage-backed - agency / residential

 

67,807 

 

1,947 

 

 -

 

65,860 

Asset-backed

 

20,532 

 

442 

 

(4)

 

20,094 

 

$

144,021 

$

3,343 

$

(250)

$

140,928 

 

 

 

 

 

 

 

 

 

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 September 30,

 

 

Nine Months Ended September 30,

 

 

2015

 

2014

 

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Proceeds

$

 -

$

3,203 

 

$

2,868 

$

11,570 

Gross gains

 

 -

 

 

 

16 

 

45 

Gross losses

 

 -

 

 -

 

 

(16)

 

(17)

Net tax expense related to gains

 

 

 

 

 

 

 

 

 

(losses) on sale

 

 -

 

 

 

 -

 

11 

 

 

The amortized cost and estimated fair value of available for sale and held to maturity debt securities by contractual maturity at September 30, 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

$

2,905 

$

2,880 

Due after one year through five years

 

58,714 

 

57,707 

Due after five years through ten years

 

5,688 

 

5,617 

Due after ten years

 

52,306 

 

54,422 

Total AFS, excluding mortgage-backed (MBS)

 

 

 

 

and collateralized loan obligations

 

119,613 

 

120,626 

Mortgage-backed and collateralized

 

 

 

 

loan obligations

 

156,740 

 

155,627 

Total securities available for sale

$

276,353 

$

276,253 

 

15

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity

 

 

Fair Value

 

Amortized Cost

 

 

(In thousands)

Securities held to maturity:

 

 

 

 

Due in one year or less

$

1,398 

$

1,399 

Due after one year through five years

 

2,820 

 

2,807 

Due after five years through ten years

 

18,827 

 

18,605 

Due after ten years

 

32,637 

 

32,163 

Total HTM, excluding MBS and asset-backed

 

55,682 

 

54,974 

Mortgage-backed and asset-backed

 

88,339 

 

85,954 

Total securities held to maturity

$

144,021 

$

140,928 

 

 

 

 

 

 

 

The following tables present the fair value and the unrealized loss on securities that were temporarily impaired as of September 30, 2015 and December 31, 2014, aggregated by major security type and length of time in a continuous unrealized loss position:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2015

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

 

Fair
Value

 

 

Unrealized
Losses

 

 

Fair
Value

 

 

Unrealized
Losses

 

 

Fair
Value

 

 

Unrealized
Losses