Add
GBNK to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| GBNK > SEC Filings for GBNK > Form 10-Q on 7-Nov-2008 | All Recent SEC Filings |
7-Nov-2008
Quarterly Report
This MD&A should be read together with our unaudited Condensed Consolidated Financial Statements and unaudited Statistical Information included elsewhere in this Report, Part II, Item 1A of this Report, and Items 1, 1A, 6, 7, 7A and 8 of our 2007 Annual Report on Form 10-K. Also, please see the disclosure in the "Forward-Looking Statements and Factors that Could Affect Future Results" section in this report for certain other factors that could cause actual results or future events to differ materially from those anticipated in the forward-looking statements included in this Report or from historical performance.
Overview
Guaranty Bancorp is a financial holding company and a bank holding company with its principal business to serve as a holding company to its subsidiaries. Unless the context requires otherwise, the terms "Company," "us," "we," and "our" refers to Guaranty Bancorp on a consolidated basis.
On May 6, 2008, the stockholders of the Company approved the proposal to change the name of the holding company from Centennial Bank Holdings, Inc. to Guaranty Bancorp. This name change was effective on May 12, 2008.
Through our banking subsidiary, we provide banking and other financial services throughout our targeted Colorado markets to consumers and to small and medium-sized businesses, including the owners and employees of those businesses. These banking products and services include accepting time and demand deposits, originating commercial loans including energy loans, real estate loans, including construction loans, Small Business Administration guaranteed loans and consumer loans. We derive our income primarily from interest received on real estate-related loans, commercial loans and leases and consumer loans and, to a lesser extent, from fees on the referral of loans, interest on investment securities and fees received in connection with servicing loan and deposit accounts. Our major operating expenses are the interest we pay on deposits and borrowings and general operating expenses. We rely primarily on locally generated deposits to provide us with funds for making loans.
We are subject to competition from other financial institutions and our operating results, like those of other financial institutions operating exclusively or primarily in Colorado, are significantly influenced by economic conditions in Colorado, including the strength of the real estate market. In addition, both the fiscal and regulatory policies of the federal government and regulatory authorities that govern financial institutions and market interest rates also impact our financial condition, results of operations and cash flows.
As of December 31, 2007, we had two banking subsidiaries. Those subsidiaries were Guaranty Bank and Trust Company and Centennial Bank of the West, which we sometimes refer to as Guaranty Bank and CBW, respectively. On January 1, 2008, CBW was merged into Guaranty Bank.
In September and October 2008, the U.S. Government along with the U.S. Treasury Department, Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve Bank took actions to improve liquidity in the financial services industry. These actions included Congressional approval on October 3, 2008 of the $750 billion Emergency Stabilization Act of 2008 (EESA). The first phase of implementation of EESA included a $250 million Treasury Capital Purchase Program. The Company has applied for up to three-percent of its total risk-weighted assets in capital, which will be in the form of non-cumulative perpetual preferred stock of the institution with a dividend rate of 5% until the fifth anniversary of the investment, and 9% thereafter. If the Company's application is approved and the investment is completed, Treasury will also receive warrants for common stock of the Company equal to 15% of the capital invested. Further, the FDIC temporarily increased deposit premium coverage from $100,000 per account to $250,000 per account through December 31, 2009. The FDIC also implemented a Temporary Liquidity Guarantee Program, which provides for full FDIC coverage for non-interest bearing deposit transaction accounts, regardless of dollar amounts. Institutions are automatically enrolled in this program unless they choose to opt-out. The Company does not intend to opt-out of this program. The FDIC also implemented a Debt Guarantee Program where it will guarantee all newly-issued senior unsecured debt up to prescribed limits by a participating bank on or after October 14, 2008 through and including June 30, 2009. Again, institutions are automatically enrolled in this program unless they choose to opt-out. The Company does not intend to opt-out of this program, which will provide coverage of up to $31.2 million of senior unsecured debt. This limit was determined based on borrowings outstanding as of September 30, 2008.
Earnings Summary
Table 1 summarizes certain key financial results for the periods indicated:
Table 1
Three Months Ended September 30, Nine Months Ended September 30,
Change - Change -
Favorable Favorable
2008 2007 (Unfavorable) 2008 2007 (Unfavorable)
(In thousands, except share data and ratios)
Results of
Operations:
Interest income $ 29,719 $ 41,084 $ (11,365 ) $ 93,338 $ 125,147 $ (31,809 )
Interest expense 9,877 15,848 5,971 31,455 47,081 15,626
Net interest income 19,842 25,236 (5,394 ) 61,883 78,066 (16,183 )
Provision for loan
losses 30,750 8,026 (22,724 ) 32,525 21,641 (10,884 )
Net interest income
after provision for
loan losses (10,908 ) 17,210 (28,118 ) 29,358 56,425 (27,067 )
Noninterest income 2,707 2,620 87 8,354 7,764 590
Noninterest expense 265,882 18,205 (247,677 ) 304,289 66,509 (237,780 )
Income (loss)
before income taxes (274,083 ) 1,625 (275,708 ) (266,577 ) (2,320 ) (264,257 )
Income tax expense
(benefit) (8,254 ) 122 8,376 (6,018 ) (2,438 ) 3,580
Net income (loss) $ (265,829 ) $ 1,503 $ (267,332 ) $ (260,559 ) $ 118 $ (260,677 )
Share Data:
Basic earnings
(loss) per share $ (5.21 ) $ 0.03 $ (5.24 ) $ (5.11 ) $ - $ (5.11 )
Diluted earnings
(loss) per share $ (5.21 ) $ 0.03 $ (5.24 ) $ (5.11 ) $ - $ (5.11 )
Average shares
outstanding 51,067,439 52,699,409 (1,631,970 ) 51,020,220 53,631,569 (2,611,349 )
Diluted average
shares outstanding 51,067,439 52,742,028 (1,674,589 ) 51,020,220 53,771,405 (2,751,185 )
Selected Ratios:
Total risk based
capital 10.45 % 10.35 % 0.10 % 10.45 % 10.35 % 0.10 %
Nonperforming
assets to total
assets 2.74 % 0.77 % 1.97 % 2.74 % 0.77 % 1.97 %
Allowance for loan
losses to
nonperforming loans 81.42 % 142.39 % -60.97 % 81.42 % 142.39 % -60.97 %
Allowance for loan
losses to loans,
net of unearned
discount 2.52 % 1.32 % 1.20 % 2.52 % 1.32 % 1.20 %
|
The $265.8 million third quarter 2008 net loss is $267.3 million lower than the third quarter 2007 net income primarily due to the $250.7 million goodwill impairment. The non-cash goodwill impairment charge is not tax deductible, thus, the entire amount of the impairment reduces net income. Further, the goodwill impairment had no impact on liquidity, regulatory capital or cash flow. Additionally, the Company increased its provision for loan losses by $22.7 million in the third quarter 2008 as compared to the same quarter in 2007. This increase in the provision for loan losses is due to an increase in the amount of nonperforming loans, a higher specific allocation related to such loans and the impact of charge-offs and the current economic climate on our historical loss and economic concerns components of our allowance for loan losses computation. Net interest income decreased by $5.4 million for the third quarter 2008 as compared to the same period in 2007 mostly due to lower rates attributable to a 275 basis point decrease by the Federal Open Markets Committee (FOMC) of the Federal Reserve Board. Without the $250.7 million goodwill impairment, noninterest expense would have decreased by approximately $3.1 million due to a reduction in salary and employee benefit expense.
On a year-to-date basis in 2008, the Company has a net loss of $260.6 million as compared to net income of $0.1 million for the same period in 2007. The significant decline is primarily due to the $250.7 million of goodwill impairment recorded in the third quarter of 2008. Additionally, the Company increased its provision for loan losses by $10.9 million for the nine-months ended September 30, 2008 as compared to the same period in 2007. This increase is primarily attributable to an increase in nonperforming assets and related charge-offs in the third quarter 2008. Net interest income decreased by $16.2 million for the year-to-date period ended September 30, 2008 as compared to the same period in 2007 due mostly to lower rates. Without the $250.7 million goodwill impairment,
noninterest expense would have decreased by $13.0 million for the nine-months ended September 30, 2008 as compared to the same period in 2007. This decrease in noninterest expense is mostly due to lower salaries and benefits expense in 2008 as compared to 2007, and additional charges of $7.5 million recorded in the second quarter 2007 in connection with the settlement of a lawsuit and restructuring charges related to the merger of our subsidiary banks.
Net Interest Income and Net Interest Margin
Net interest income, which is our primary source of income, represents the difference between interest earned on assets and interest paid on liabilities. The interest rate spread is the difference between the yield on our interest-bearing assets and liabilities. Net interest margin is net interest income expressed as a percentage of average interest-earning assets.
The following table summarizes the Company's net interest income and related spread and margin for the current quarter and prior four quarters:
Table 2
Quarter Ended
September 30, June 30, March 31, December 31, September 30,
2008 2008 2008 2007 2007
(Dollars in thousands)
Net interest
income $ 19,842 $ 20,391 $ 21,650 $ 24,184 $ 25,236
Interest rate
spread 3.37 % 3.50 % 3.58 % 3.77 % 3.84 %
Net interest
margin 4.02 % 4.20 % 4.42 % 4.75 % 4.82 %
Net interest
margin, fully tax
equivalent 4.11 % 4.28 % 4.53 % 4.88 % 4.97 %
|
Third quarter 2008 net interest income of $19.8 million declined by $5.4 million from the third quarter 2007. This decrease is a result of a $4.8 million unfavorable rate variance and a $0.6 million unfavorable volume variance (see Table 5).
The unfavorable rate variance from the prior year third quarter is primarily attributable to lower yields on earnings assets, and in particular loans. The yield on earning assets declined by 182 basis points from 7.84% for the third quarter 2007 to 6.02% for the third quarter 2008. During that same period, the Federal Open Markets Committee (FOMC) of the Federal Reserve Board decreased the target federal funds rate six times by a total of 275 basis points. Similarly, the prime rate decreased by 275 basis points during this same period. Approximately 64% of the Company's outstanding loan balances are variable rate loans and are tied to indices such as prime, LIBOR or federal funds. As a result of these rate declines, the average yield on loans for the Company decreased by 204 basis points from 8.13% for the quarter ended September 30, 2007 to 6.09% for the same period in 2008. Rates paid on interest-bearing liabilities also declined during this same period by 135 basis points, for a net decrease in the net interest spread of 47 basis points over this same period. Although the net interest spread decreased by 47 basis points, the overall net interest margin declined by 80 basis points. The cause for the larger impact on net interest margin as compared to the interest rate spread is that the benefit from noninterest bearing deposits had a smaller impact in 2008 compared to 2007 due to the lower interest rate environment.
The unfavorable volume variance is mostly attributable to a $113.5 million decrease in average earning assets for the third quarter 2008 as compared to the same period in 2007. The average balance of loans declined from the same period in the prior year by $64.6 million. Most of this decline is attributable to management's decision to reduce the number of construction loans. The construction loan balance decreased by $42.6 million from September 30, 2007 to September 30, 2008. Additionally, approximately $48 million of certain nonperforming and classified loans were sold in October 2007.
The following table summarizes the Company's net interest income and related spread and margin for the year-to-date periods presented:
Table 3
Nine Months Ended
September 30, September 30,
2008 2007
(Dollars in thousands)
Net interest income $ 61,883 $ 78,066
Interest rate spread 3.48 % 4.00 %
Net interest margin 4.21 % 4.99 %
Net interest margin, fully tax equivalent 4.31 % 5.15 %
|
For the nine-month period ended September 30, 2008, net interest income decreased by $16.2 million, or 20.7%, as compared to the same period in 2007. This decrease is due to a $14.1 million unfavorable rate variance and a $2.1 million unfavorable volume variance (see Table 5).
The unfavorable rate variance for year-to-date 2008 is mostly due to a decrease in the yield on earning assets. The yield on earning assets decreased by 165 basis points to 6.35% for the nine months ended September 30, 2008 from 8.00% for the same period in 2007. During that same period, the Federal Open Markets Committee (FOMC) of the Federal Reserve Board decreased the target federal funds rate six times by a total of 275 basis points. Similarly, the prime rate decreased by 275 basis points during this same period. These rate decreases also impacted the Bank's cost of funds. The cost of interest-bearing liabilities was 2.87% for the first nine months of 2008 as compared to 4.00% for the same period in 2007.
The unfavorable volume variance is mostly a result of lower average earning assets. Average earning assets decreased by $128.9 million for the year-to-date 2008 as compared to the same period in 2007. Approximately $112.8 million of this decrease was due to a decline in average construction loans, as well as a sale of a portion of certain nonperforming and classified loans in October 2007. Most of the remainder of the decrease is due to a decrease in the average balance of tax-exempt securities.
The following table presents, for the periods indicated, average assets, liabilities and stockholders' equity, as well as the net interest income from average interest-earning assets and the resultant annualized yields expressed in percentages. Nonaccrual loans are included in the calculation of average loans while accrued interest thereon is excluded from the computation of yields earned.
Table 4
Quarter Ended September 30,
2008 2007
Interest Average Interest Average
Average Income or Yield or Average Income or Yield or
Balance Expense Cost Balance Expense Cost
(Dollars in thousands)
ASSETS:
Interest-earning
assets:
Gross loans, net of
unearned fees
(1)(2) $ 1,807,325 $ 27,675 6.09 % $ 1,871,939 $ 38,369 8.13 %
Investment
securities (1)
Taxable 53,273 749 5.59 % 50,779 617 4.82 %
Tax-exempt 69,272 846 4.86 % 106,566 1,343 5.00 %
Bank Stocks (3) 32,714 441 5.37 % 32,181 490 6.05 %
Other earning
assets 1,662 8 1.87 % 16,326 265 6.43 %
Total
interest-earning
assets 1,964,246 29,719 6.02 % 2,077,791 41,084 7.84 %
Non-earning assets:
Cash and due from
banks 35,770 44,189
Other assets 351,897 504,933
Total assets $ 2,351,913 $ 2,626,913
|
LIABILITIES AND STOCKHOLDERS' EQUITY: Interest-bearing liabilities: Deposits: Interest-bearing demand $ 148,536 $ 177 0.47 % $ 151,656 $ 122 0.32 % Money market 517,001 2,343 1.80 % 653,997 6,272 3.81 % Savings 70,512 99 0.56 % 75,374 146 0.77 % Time certificates of deposit 484,706 4,835 3.97 % 579,339 7,393 5.06 % Total interest-bearing deposits 1,220,755 7,454 2.43 % 1,460,366 13,933 3.79 % Borrowings: Repurchase agreements 20,317 105 2.05 % 35,475 425 4.75 % Federal funds purchased 9,981 55 2.21 % 258 3 5.39 % Subordinated debentures 41,239 778 7.50 % 41,239 944 9.08 % Borrowings 192,088 1,485 3.08 % 35,326 543 6.09 % Total interest-bearing liabilities 1,484,380 9,877 2.65 % 1,572,664 15,848 4.00 % Noninterest bearing liabilities: Demand deposits 426,128 458,143 Other liabilities 17,838 26,848 Total liabilities 1,928,346 2,057,655 Stockholders' Equity 423,567 569,258 Total liabilities and stockholders' equity $ 2,351,913 $ 2,626,913 Net interest income $ 19,842 $ 25,236 Net interest margin 4.02 % 4.82 % |
(2) Net loan fees of $0.9 million and $1.2 million for the three months ended September 30, 2008 and 2007, respectively, are included in the yield computation.
(3) Includes Bankers Bank of the West stock, Federal Agricultural Mortgage Corporation (Farmer Mac) stock, Federal Reserve Bank stock and Federal Home Loan Bank stock.
Table 4 (Continued)
Nine Months Ended September 30,
2008 2007
Interest Average Interest Average
Average Income or Yield or Average Income or Yield or
Balance Expense Cost Balance Expense Cost
(Dollars in thousands)
ASSETS:
Interest-earning
assets:
Gross loans, net of
unearned fees
(1)(2) $ 1,787,912 $ 86,822 6.49 % $ 1,888,013 $ 117,194 8.30 %
Investment
securities (1)
Taxable 53,411 2,212 5.53 % 51,075 1,846 4.83 %
Tax-exempt 73,094 2,616 4.78 % 109,347 4,091 5.00 %
Bank Stocks (3) 32,590 1,346 5.52 % 32,011 1,424 5.95 %
Other earning
assets 15,348 342 2.98 % 10,769 592 7.35 %
Total
interest-earning
assets 1,962,355 93,338 6.35 % 2,091,215 125,147 8.00 %
Non-earning assets:
Cash and due from
banks 38,020 50,907
Other assets 359,209 514,207
Total assets $ 2,359,584 $ 2,656,329
|
LIABILITIES AND STOCKHOLDERS' EQUITY: Interest-bearing liabilities: Deposits: Interest-bearing demand $ 152,537 $ 639 0.56 % $ 156,837 $ 637 0.54 % Money market 546,317 8,615 2.11 % 636,547 18,034 3.79 % Savings 70,740 311 0.59 % 79,299 462 0.78 % Time certificates of deposit 461,820 15,095 4.37 % 578,170 21,884 5.06 % Total interest-bearing deposits 1,231,414 24,660 2.67 % 1,450,853 41,017 3.78 % Borrowings: Repurchase agreements 18,851 323 2.29 % 32,312 1,157 4.79 % Federal funds purchased 6,655 119 2.39 % 716 20 3.74 % Subordinated debentures 41,239 2,422 7.85 % 41,239 2,814 9.12 % Borrowings 167,634 3,931 3.13 % 46,941 2,073 5.90 % Total interest-bearing liabilities 1,465,793 31,455 2.87 % 1,572,061 47,081 4.00 % Noninterest bearing liabilities: Demand deposits 450,330 473,214 Other liabilities 19,842 31,332 Total liabilities 1,935,965 2,076,607 Stockholders' Equity 423,619 579,722 Total liabilities and stockholders' equity $ 2,359,584 $ 2,656,329 Net interest income $ 61,883 $ 78,066 Net interest margin 4.21 % 4.99 % |
(2) Net loan fees of $2.6 million and $4.3 million for the nine months ended September 30, 2008 and 2007, respectively, are included in the yield computation.
(3) Includes Bankers Bank of the West stock, Federal Agricultural Mortgage Corporation (Farmer Mac) stock, Federal Reserve Bank stock and Federal Home Loan Bank stock.
The following table presents the dollar amount of changes in interest income and
interest expense for the major categories of our interest-earning assets and
interest-bearing liabilities. Information is provided for each category of
interest-earning assets and interest-bearing liabilities with respect to
(i) changes attributable to volume (i.e., changes in average balances multiplied
by the prior-period average rate) and (ii) changes attributable to rate (i.e.,
changes in average rate multiplied by prior-period average balances). For
purposes of this table, changes attributable to both rate and volume, which
cannot be segregated, have been allocated proportionately to the change due to
volume and the change due to rate.
Table 5
Three Months Ended September 30, 2008 Nine Months Ended September 30, 2008
Compared to Three Months Ended Compared to Nine Months Ended
September 30, 2007 September 30, 2007
Net Change Rate Volume Net Change Rate Volume
(In thousands)
Interest income:
Gross Loans, net of unearned fees $ (10,694 ) $ (9,410 ) $ (1,284 ) $ (30,372 ) $ (24,423 ) $ (5,949 )
Investment Securities
Taxable 132 101 31 366 279 87
. . .
|
|
|