Add
GBNK to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| GBNK > SEC Filings for GBNK > Form 10-Q on 30-Apr-2009 | All Recent SEC Filings |
30-Apr-2009
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 2008 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 bank holding company with its principal business to serve as a holding company to its bank subsidiary. 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.
Earnings Summary
Table 1 summarizes certain key financial results for the periods indicated:
Table 1
Three Months Ended March 31,
Change -
Favorable
2009 2008 (Unfavorable)
(In thousands, except share data and ratios)
Results of Operations:
Interest income $ 24,860 $ 33,403 $ (8,543 )
Interest expense 9,142 11,753 2,611
Net interest income 15,718 21,650 (5,932 )
Provision for loan losses 2,505 875 (1,630 )
Net interest income after provision for loan
losses 13,213 20,775 (7,562 )
Noninterest income 2,915 2,515 400
Noninterest expense 15,481 18,710 3,229
Income before income taxes 647 4,580 (3,933 )
Income tax expense 211 1,335 1,124
Net income $ 436 $ 3,245 $ (2,809 )
Share Data:
Basic earnings per share $ 0.01 $ 0.06 $ (0.05 )
Diluted earnings per share $ 0.01 $ 0.06 $ (0.05 )
Average shares outstanding 51,277,748 50,988,229 289,519
Diluted average shares outstanding 51,277,930 51,049,525 228,405
Change -
March 31, December 31, Favorable
2009 2008 (Unfavorable)
Selected Balance Sheet Ratios:
Total risk based capital 10.82 % 10.61 % 0.21 %
Nonperforming loans to loans, net of
unearned discount 3.31 % 3.00 % 0.31 %
Allowance for loan losses to loans, net of
unearned discount 2.14 % 2.46 % (0.32 )%
|
The $0.4 million first quarter 2009 net income is $2.8 million lower than the first quarter 2008 net income of $3.2 million, primarily due to a $5.9 million reduction in net interest income, as well as a $1.6 million increase in the provision for loan losses. These items were partially offset by a $3.2 million reduction in noninterest expense and a $0.4 million increase in noninterest income.
Net interest income decreased by $5.9 million for the first quarter 2009 as compared to the same period in 2008 mostly due to lower rates attributable to a greater than 400 basis point decrease in the targeted federal funds rate by the Federal Open Markets Committee (FOMC) of the Federal Reserve Board since the beginning of the first quarter 2008. The targeted federal funds rate was 4.25% at January 1, 2008 and fell to between 0% and 0.25% on December 16, 2008, where it remains today.
The provision for loan losses is the amount required to maintain the allowance for loan losses at a level that, in our judgment, is adequate to absorb probable incurred loan losses in the loan portfolio. The increase in the provision for loan losses in the first quarter 2009 as compared to the same period in 2008 is primarily a result of the increase in net charge-offs, which in turned increased the amount required to maintain the allowance for loan losses at an appropriate level.
Noninterest expense declined from the first quarter 2008 primarily as a result of a major effort announced in mid-2008 to better align our expenses with the current size of our business. This effort resulted in a decline in the number of full-time equivalent employees from 465 at March 31, 2008 to 373 at March 31, 2009.
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
March 31, December 31, September 30, June 30, March 31,
2009 2008 2008 2008 2008
(Dollars in thousands)
Net interest income $ 15,718 $ 17,679 $ 19,842 $ 20,391 $ 21,650
Interest rate spread 2.62 % 2.92 % 3.37 % 3.50 % 3.58 %
Net interest margin 3.26 % 3.55 % 4.02 % 4.20 % 4.42 %
Net interest margin, fully
tax equivalent 3.34 % 3.64 % 4.11 % 4.28 % 4.53 %
|
First quarter 2009 net interest income of $15.7 million declined by $5.9 million from the first quarter 2008. This decrease is a result of a $5.8 million unfavorable rate variance and a $0.1 million unfavorable volume variance (see Table 4).
The $5.8 million unfavorable rate variance from the prior year first quarter is primarily attributable to lower yields on earnings assets, and in particular loans. The yield on earning assets declined by 166 basis points from 6.82% for the first quarter 2008 to 5.16% for the first quarter 2009. The Federal Open Markets Committee (FOMC) of the Federal Reserve Board decreased the target federal funds rate seven times by a total of greater than 400 basis points during 2008. Similarly, the prime rate decreased by 400 basis points from January 2008 to the end of 2008.
Interest income decreased by $8.5 million from $33.4 million in the first quarter 2008 to $24.9 million in the first quarter 2009. Approximately 63% of the Company's outstanding loan balances are variable rate loans and are tied to indices such as prime or LIBOR. As a result of the decline in rates discussed above, the average yield on loans for the Company decreased by 189 basis points from 7.06% for the quarter ended March 31, 2008 to 5.17% for the same period in 2009. The Company remains asset sensitive at the end of the first quarter 2009 and expects that as interest rates rise, net interest income will also increase.
Rates paid on interest-bearing liabilities also declined during this same period by 70 basis points, for a net decrease in the net interest spread of 96 basis points over this same period. Overall net interest margin declined by 116 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 2009 compared to 2008 due to the extremely low interest rate environment.
The $0.1 million unfavorable volume variance is mostly attributable to a $14.2 million decrease in average total earning assets for the first quarter 2009 as compared to the same period in 2008. The average balance of loans increased from the same period in the prior year by $41.1 million, however, other earning assets declined primarily due to the decrease in the average balance of federal funds sold.
Although net interest margin decreased to 3.26% for the first quarter 2009 from 3.55% in the fourth quarter 2008, net interest margin began to recover during the later part of the first quarter 2009. In the fourth quarter of 2008, the prime rate dropped by 175 basis points, including a 75 basis point drop in December 2008. The detrimental impact of these rate changes on loan yields continued into early 2009 due to the repricing of loans with monthly, quarterly and annual loan repricing dates. January and February 2009 net interest margins were 3.19% and 3.13%, respectively. Management had begun addressing the falling interest rates in 2008 and into 2009 through the utilization of loan floors and higher pricing on renewed and new loans. Net interest margin improved to 3.46% in March 2009, primarily as a result of these efforts.
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 3
Quarter Ended March 31,
2009 2008
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) $ 1,808,727 $ 23,076 5.17 % $ 1,767,582 $ 31,040 7.06 %
Investment securities
(1)
Taxable 48,944 726 6.02 % 50,810 615 4.87 %
Tax-exempt 63,813 767 4.88 % 76,501 893 4.69 %
Bank Stocks (3) 28,274 288 4.13 % 32,466 470 5.82 %
Other earning assets 5,175 3 0.27 % 41,796 385 3.71 %
Total interest-earning
assets 1,954,933 24,860 5.16 % 1,969,155 33,403 6.82 %
Non-earning assets:
Cash and due from banks 29,947 40,858
Other assets 80,800 366,526
Total assets $ 2,065,680 $ 2,376,539
|
LIABILITIES AND STOCKHOLDERS' EQUITY: Interest-bearing liabilities: Deposits: Interest-bearing demand $ 140,136 $ 88 0.25 % $ 155,900 $ 282 0.73 % Money market 297,386 630 0.86 % 581,538 3,781 2.62 % Savings 70,120 55 0.32 % 71,178 114 0.65 % Time certificates of deposit 719,600 6,352 3.58 % 468,990 5,618 4.82 % Total interest-bearing deposits 1,227,242 7,125 2.35 % 1,277,606 9,795 3.08 % Borrowings: Repurchase agreements 17,007 37 0.89 % 16,813 120 2.87 % Federal funds purchased 285 1 0.87 % 2,098 17 3.20 % Subordinated debentures 41,239 658 6.47 % 41,239 792 7.72 % Borrowings 171,848 1,321 3.12 % 120,483 1,029 3.43 % Total interest-bearing liabilities 1,457,621 9,142 2.54 % 1,458,239 11,753 3.24 % Noninterest bearing liabilities: Demand deposits 432,080 472,802 Other liabilities 12,122 22,958 Total liabilities 1,901,823 1,953,999 Stockholders' Equity 163,857 422,540 Total liabilities and stockholders' equity $ 2,065,680 $ 2,376,539 Net interest income $ 15,718 $ 21,650 Net interest margin 3.26 % 4.42 % |
(2) Net loan fees of $0.8 million and $0.7 million for the three months ended March 31, 2009 and 2008 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 4
Three Months Ended March 31, 2009 Compared to
Three Months Ended March 31, 2008
Net Change Rate Volume
(In thousands)
Interest income:
Gross Loans, net of unearned fees $ (7,964 ) $ (8,705 ) $ 741
Investment Securities
Taxable 111 133 (22 )
Tax-exempt (126 ) 27 (153 )
Bank Stocks (182 ) (127 ) (55 )
Other earning assets (382 ) (197 ) (185 )
Total interest income (8,543 ) (8,869 ) 326
Interest expense:
Deposits:
Interest-bearing demand (194 ) (168 ) (26 )
Money market (3,151 ) (1,827 ) (1,324 )
Savings (59 ) (57 ) (2 )
Time certificates of deposit 734 (712 ) 1,446
Repurchase agreements (83 ) (84 ) 1
Federal funds purchased (16 ) (7 ) (9 )
Subordinated debentures (134 ) (134 ) 0
Borrowings 292 (90 ) 382
Total interest expense (2,611 ) (3,079 ) 468
Net interest income $ (5,932 ) $ (5,790 ) $ (142 )
|
Provision for Loan Losses
The provision for loan losses represents a charge against earnings. The provision is the amount required to maintain the allowance for loan losses at a level that, in our judgment, is adequate to absorb probable incurred loan losses in the loan portfolio. The provision for loan losses is based on our reserve methodology and reflects our judgments about the adequacy of the allowance for loan losses. In determining the amount of the provision, we consider certain quantitative and qualitative factors including our historical loan loss experience, the volume and type of lending we conduct, the results of our credit review process, the amounts and severity of classified, criticized and nonperforming assets, regulatory policies, general economic conditions, underlying collateral values and other factors regarding collectibility and impairment. The amount of expected loss on our loan portfolio is influenced by the collateral value associated with our loans. Loans with greater collateral value lessen our exposure to loan loss provision.
In the first quarter 2009, the Company recorded a provision for loan losses of $2.5 million, compared to $0.9 million in the first quarter 2008. The Company determined that the provision for loan losses made during first quarter was sufficient to maintain our allowance for loan losses at a level necessary for the probable incurred losses inherent in the loan portfolio as of March 31, 2009. Net charge offs in the first quarter 2009 were $9.9 million, as compared to $0.5 million for the same quarter in 2008. We believe that continued economic weakness will likely result in a continuation of the elevated provision for loan losses in future periods.
For a discussion of impaired loans and associated collateral values, see "Balance Sheet Analysis-Nonperforming Assets" below.
For further discussion of the methodology and factors impacting management's estimate of the allowance for loan losses, see "Balance Sheet Analysis- Allowance for Loan Losses" below.
Noninterest Income
The following table presents the major categories of noninterest income for the current quarter and prior four quarters:
Table 5
Quarter Ended
March 31, December 31, September 30, June 30, March 31,
2009 2008 2008 2008 2008
(In thousands)
Noninterest income:
Customer service and other fees $ 2,679 $ 2,357 $ 2,521 $ 2,528 $ 2,276
Gain on sale of securities - - - - 138
Other 236 (91 ) 186 604 101
Total noninterest income $ 2,915 $ 2,266 $ 2,707 $ 3,132 $ 2,515
|
Noninterest income for the first quarter 2009 increased by $0.6 million from the fourth quarter 2008 and increased by $0.4 million from the first quarter 2008. The increase in other noninterest income in the first quarter 2009 as compared to the first quarter 2008 was primarily the result of increases in customer fee income, partially as a result of a reduction in the earnings credit rate on commercial deposit accounts. Additionally, the Company recognized approximately $0.2 million in fees associated with entering into two separate interest rate swap transactions with customers during the first quarter 2009.
Fluctuations in other noninterest income are primarily the result of the volatility of the fair value of assets held by the Company for purposes of funding its nonqualified deferred compensation plan. The loss in other noninterest income during the fourth quarter 2008 was primarily a result of a $0.3 million fair value write-down (contra-income) related to the average balance of $1.1 million of assets held for purposes of funding the Company's deferred compensation plan. These assets are required to be marked-to-market through the income statement. These write-downs of the assets held for the deferred compensation plan are almost entirely offset by a reduction to our deferred compensation liability account, which reduces our overall compensation cost. Therefore, this volatility on the market value of our deferred compensation plan asset and liability accounts had only a nominal overall impact on net income.
Noninterest Expense
The following table presents, for the quarters indicated, the major categories of noninterest expense:
Table 6
Quarter Ended
March 31, December 31, September 30, June 30, March 31,
2009 2008 2008 2008 2008
(In thousands)
Noninterest expense:
Salaries and employee
benefits $ 6,739 $ 6,255 $ 5,927 $ 9,184 $ 9,720
Occupancy expense 1,921 1,725 1,958 2,131 2,001
Furniture and equipment 1,131 1,203 1,390 1,383 1,314
Impairment of goodwill - - 250,748 - -
Amortization of intangible
assets 1,582 1,803 1,877 1,877 1,877
Other general and
administrative 4,108 4,381 3,982 5,122 3,798
Total noninterest expense $ 15,481 $ 15,367 $ 265,882 $ 19,697 $ 18,710
|
Noninterest expense for the first quarter 2009 remained relatively flat as compared to the fourth quarter 2008, and decreased by $3.2 million from the first quarter 2008.
Salary and employee benefits expense decreased by $3.0 million in the first quarter 2009 as compared to the same quarter in 2008. The decline in salaries and employee benefits expense from the first quarter 2008 is mostly attributable to a $1.5 million decrease in base salary and benefits expense as a result of a reduction in full-time equivalent employees from the first quarter 2008. In the second quarter 2008, the Company announced a major effort to better align our expenses with the current size of our business. This effort resulted in a reduction of full-
time equivalent employees from 465 at March 31, 2008 to 373 at March 31, 2009. Additionally, there was a $0.7 million reduction in equity-based compensation expense, which is mostly attributable to a reduction in the costs of performance based restricted stock expense as well as an increase in the rate of forfeitures during 2008 and 2009. The remaining decrease to salaries and employee benefits expense is due to lower bonus and incentive expense in 2009 as compared to 2008.
Amortization of intangible asset expense is $1.6 million in the first quarter 2009 as compared to $1.9 million in the first quarter 2008, a decrease of 15.8%. This decrease is attributable to the use of accelerated methods to amortize the core deposit intangible asset.
Other general and administrative expense increased by $0.3 million in the first quarter 2009 as compared to the first quarter 2008. The increase in other general and administrative expense in the first quarter 2009 as compared to the same period in 2008 is mostly due to an increase in Federal Deposit Insurance Corporation (FDIC) insurance premiums. In January 2009, the FDIC finalized new rules that increased the FDIC insurance premiums by 7 basis points, which effectively doubled the amount of FDIC insurance premiums paid by the Company. . . .
|
|