Q4 2020 Guaranty Bancshares Inc Earnings Call

And for the year, we were 3.7 and 7% fully tax equivalent.

And that compares to 2019 of $3 six 9%, so even for the year or for the year for 'twenty and 'twenty, we were able to increase even as rates and.

And interest rate environment decreased.

We did put a table in there that.

Take the PPP effects out.

So if our Q4 and.

<unk>.

NIM ex PPP was three 7% we did have about 265 million in fees, which affected net interest margin. So that's why the big variance for Q4, but for the year again, PPP effected ex ex out PPP, we still had a three.

Seven 7% yield and there's a again, there's a table in there that will walk you through all of that if you want to see the detail.

So talk a little bit about the top side the loan loan yield stater deal for the quarter was four nine and three again ex out PPP and it takes it down 10 basis points to 483 for the quarter.

And that compared to four point nano for Q3.

And for the year were five point O, 2% ex PPP.

So and that compares to 2019 loan yield of $5 39, and that's a 37 basis point decrease year over year and.

Keep that and maths on the top line was down 37 basis points year over year.

And just I guess as a as a note on the loan side, we have about two thirds of our loans about $1 1 billion that do have interest rate floors and little over half are currently on their floor and a day and that's and they're at a four and 5% rate.

On a hold up some of the rate as long as rates decrease.

And then looking at the.

Liability side of the costing side, our cost of interest bearing deposits was 51 basis points.

For the linked quarter.

And that's down 12 basis points from Q3, which I think that was down about 20 basis points from Q2. So we've been able to see some good decrease and cost of funds as we are repricing and some of those Cds roll off at a higher rate and put on and a lower rate.

And then reprap and our non maturing.

Deposits as well as having a pretty good percentage and DDA.

So if you take our total cost of deposits and bake in the DDA effect.

For Q4, our total cost of deposits was 33 basis points compared to 41 basis points and Q3 again similar.

And a decrease.

For the year, our total cost of deposits was 54 basis points compared to 2019 of one 1%. So total cost of deposits are down 56 basis points year over year, so and compare that to what the loan side did and that's why we were able to maintain our NIM pretty pretty well throughout the year.

Sure.

Noninterest income continues to remain strong and saw the and I Hope you saw it and the report for the quarter were $6 4 million and was down about 237000 linked quarter. We did receive our annual debit card incentive and Q3, which we did not receive obviously in Q4 that was one <unk>.

<unk> 90000 was at 230, so made up the majority of it for.

For the year, though we did very well $6 1 million increase and our total non interest income at a 36% increase overall of course, we all know and I think most banks are reporting is driven by increased mortgage activity our revenue for mortgage activity increased 133% I really good.

Volume increase there.

Warehouse lending revenue topside increased 43% and debit card revenue, 31% increase again I think due to activity that most people are doing electronic as opposed to traditional.

On our noninterest expense side, we did increased $1 4 million during the quarter and was driven mainly by increases in employee costs of 772000, which in large part we added incentive compensation accrual just because our earnings increase that and that at <unk>.

Comp.

Cruel increase was 640000 of that 770000 and employee compensation.

We did have an increase and our legal and professional fees of 394000 and that was driven mainly by recruiting cost.

Some legal fees and some additional audit work really what was related to COVID-19.

And on the loan book.

So year over year, our noninterest expense was up 4 million or six 4%.

And lastly.

Our stated efficiency ratio for Q4 was just under 60% and for the year just under 59%.

Again since there is so much of the PPP related effects, we do put.

And what our efficiency ratio is ex PPP.

And for the year, we were 63% ex and add all PPP activity and that compares to 2000 1965, 2%. So it made good progress there and <unk>.

Plan to continue improvement and that area.

And just a high level recap of the balance sheet and income statement I'll turn it over to Shane.

Thanks Kathy.

And I'm going to talk a little bit about COVID-19, and our response to that.

And additional information about SBA PPP update.

Capital related deferrals during 2020.

And who would've thought that a year ago, we would still be talking about COVID-19, and January 2021 day, Unfortunately, and we are on.

Hopefully you all are out there.

Okay.

So unfortunately like many other areas of the country, Texas is authentic and high levels of Covid cases, and full hospital.

So in order to increase safety measures for employees and customers.

Doctor appointments and rules and our lobby.

Kim Collins and scheduling and crystal.

When you ask a question.

And they can schedule and meeting with our crystal bankers on things like to move that way.

We have approximately 30% and lastly is currently that are working remotely.

We've held meetings with all operational areas to share that debt.

And to equity, 100% remark and then.

When you have an outbreak within our bank or a particular department.

And we are confident that and claims will be able to work remotely if necessary and and operation will not be significantly impacted.

We also continue to encourage and relates to follow the CDC guidelines out there.

Inc.

And that's why now with all of debt, we hope that on.

Ladies and continuing that Brian.

And are encouraging on here, yes, it absolutely is available as well.

We are seeing and president and he is a technology and online and mobile banking per.

And by our customers have seen interest level departure.

As Kathy mentioned and quickly.

Debit card spending as well.

So under the Sba's first round of PPP lending, we lend to.

<unk> hundred 96 million to 1940 <unk> borrowings.

And as of last Thursday January 14, we have submitted.

The weighted.

And if I could just applications, where they have a base and ratio remain and we've actually received forgiveness payments from the SBA.

$82 million on 780, <unk>, So we're continuing to.

So net debt forgiveness applications and ESPN.

And is actually doing a pretty good job getting this forgiven and and getting opinions capex, yes.

And then.

And it ended 2020, we recognized GBP origination income of $5 7 million and.

Let me origination costs of 86 863000, so we have about $2 5 million of deferred revenue remaining and get that initial PPP around.

We do plan to start participating and the new round of PPP loans today.

And we're working with our lenders.

Leading us on the ever changing SBA guidance, and our lenders are prepared and start taking applications for it.

And customers today.

Okay.

So now on to deferrals.

And the first started we offered to deferral program.

And with could either request, a three months P&I deferral or they could request up to a six month interest only deferrals.

And at that time, we allowed borrowers to request weighted deferrals without.

Trey and needs based assessment that if they believed it was prudent to do day to help their businesses moving allow them to defer.

There are three months payments or the interest earning portion of the payments for up to six months.

Subsequent deferrals that we've made since doctor and.

And underwriting based on demonstrated need and we've tried to obtain additional collateral and possible and risk weighted assets appropriately.

So let me for openings that initial program piggybacking in June.

As of June 32020 ended a three months P&I program, we had 247 8 million.

600 day.

So today, we have one loan that's under our P&I deferral.

And not readiness for a medical office building.

And the second P&I deferral was essentially just granted to allow that borrower additional time for cash flows, particularly type of new leases that they have on that building.

They do have those leases in place now, but granted some initial concessions and sore, allowing on time to catch up there.

And really at that level, we will be fine.

Under the initial six month interest only program, we had at its peak $183 $7 million comprehend and 36 months.

And so we've got 15 left under that.

And there are interest only program right now three of them on.

And they're still on the first deferral period, and we expect them to get back on contractual payments.

And kind of bromine and second deferral period.

And I am sorry deferral period.

And all of our current deferrals $44 4 million of those deferrals are and hotel and restaurant industries, which Tom will talk a little bit more about effective COVID-19 and.

Industry share in the second.

And all of the lens on deferral or risk weighted either watch special mention and substandard and we believe are appropriately reserved.

So now I will turn it back over to Todd to let him talk to you more about our <unk>.

And then portfolio.

Kevin related expenditures and problem assets.

Thanks Julie.

So as James said overall portfolio and borrowers and whether it's Toby.

Fairly well.

Lastly, and said we were we were pretty accommodating with the modification that we allowed during the first part of this with either a six month, our three months P&I and feeling.

Feeling like that not only would it help directly impacted borrowers.

Get through and get through that period, but also we felt like given our stronger borrowers would just give them additional liquidity and options. So what we really focused on was around two and as Julian and kind of went over the round, two and pretty pretty minimal as far as because that's trending and we'd needs.

Means tested that and those were the modifications, we've really focused on re underwrote those credits and as I mentioned last call for the third quarter cash.

<unk>, our chief Credit Officer Randy.

And then it and a deep dive and the whole portfolio. When all of this is unfolding and March and April and really.

Went through every credit and the bank.

Of any size and just felt very comfortable where we were overall debt and said, we still decided to take a pretty aggressive and conservative view.

The reserve side that we've highlighted for you, but overall our portfolio I think we told everyone that day.

And $169 million and what we're calling impacted sectors and with Covid, which is restaurant retail CRE hospitality and <unk>.

Retail business.

That total was down around $20 million.

And when the first studies reported net in June.

Restaurants were down to $26 million, and really 40% Thats too long term borrowers with.

Ample liquidity and high net worth so from there very small restaurant exposure 300000 average and 77 loans, mostly real estate back. So again, just very little direct.

Our exposure and the restaurant bucket.

And retail retail CRE.

And it's at $43 million.

The average loan to value and 50% and we feel very comfortable kind of where we are.

That portfolio hospitality.

$7 million declined a little bit and $71 million and Jim majority of that is our required debt.

And westbound we had those well reserved.

A lot of those actually have SBA guarantees on the hospitality piece. So we're comfortable where we are there with hospitality that's a 56%.

Average LTV in that portfolio and the remaining just what we're calling and our retail business bucket is went from $17 million to $13 million again, very small average loan balance and 53% LTV. So overall.

We remain pretty optimistic and kind of.

And where we stand as far as the quality of the loan portfolio.

Loan demand for 'twenty and 'twenty was muted as I think most banks we're seeing.

Which probably was to be expected I will say the last couple of months, we're seeing increased loan demand.

And we're pretty pretty optimistic about that we are seeing.

The Texas story that we talk about a lot.

And I can say I, probably have never been more optimistic as far as just the opportunities for say the next three to five years, we're seeing unbelievable amount of relocations of companies and individuals and really its not whats different is not just the metro markets, we're seeing relocations.

And the rural markets and so just like the next three to five years that Texas story is going to really continue to shine and.

We're going to see a lot of opportunity and again as we get past Covid and get past the vaccine, we're very optimistic about kind of where we position of the company.

On non accrual and nonperforming.

On the where we reported seven non performing assets, that's actually down from year and.

And I think it was <unk> 72, there so really not a lot of change there and and non accrual balance we reported $12 million.

That is and about 12 million theres about $10 million of that so nearly the majority of that is with <unk>.

<unk> brands, we acquired westbound to hospitality and one other credit one of them has actually been resolved. The other one has a contract so we're going to be down we believe.

After Q1 of 'twenty one to one.

Four.

And on a $5 million.

Hospitality loans Thats SBA guaranteed and we have very large reserves and on all three of those credits actually have some shareholder reserves on one of them I think so we're gonna be down to like I said about 5 million and those items and we acquired we've been carrying for last two years of those credits from there Youre looking at a couple of million.

$3 million and small loans and just not a lot of large loans and non mob exposure that we'd see and that so overall, we're very pleased the portfolio not only with where we are today, but has performed through this stress event we.

We do think we took the right approach and we're very conservative with our reserves.

And when this was starting just for the lack of clarity that was going on we will likely see.

And our provision release.

And reserve reversal in 'twenty, one and I don't see any way around that but we tried to hold our reserves for the most part through 'twenty.

Just again until we saw how the vaccine is going to rollout so.

That's kind of a quick overview, but we'll get into Q&A and masks entering any other questions on the portfolio that you.

You have so I wanted to perhaps chalet and just.

Briefly your overseas <unk> and.

Kind of our allowance for credit losses.

Yeah, Thanks, Hi.

You know like Tom mentioned on our borrowers seemed to help weather the storm pretty well.

We had no provision for credit losses, and the fourth quarter and we had a 300000 on a reverse provision in Q3 and.

Overall loans performing and quickly size and it continues to remain relatively stable and we've had no significant charge offs, yet as a result of COVID-19.

And however.

So we actually see declines and Covid cases, and people are really starting to get out and travel and eat and spend their money and.

Management and it doesn't feel like it's appropriate to release provisions that are recorded and the first half of 2020 quite yet.

And at that time, we develop additional key factors based on macroeconomic factors that were impacted by Covid and the test is key factors constant as we continue to monitor cost per timing and effects of economic recovery and hook.

People are getting vaccinated and staying healthy.

Our allowance for credit losses, as a percentage of total loans at December 31.

One 8% excluding <unk>.

PPP loans is around 9% nine 5%.

So that concludes our prepared remarks, I will turn it back over to no net for Q1.

Thank you Shelly.

If you are.

You have a question please hit the <unk>.

Raise your hand button at the bottom of your screen, if you're participating by telephone star non will raise your hand star six well on mute your line.

Our first question today is from Brady Gailey with <unk>.

Right and you shouldn't be able to on mute your line.

Great. Thanks, and good morning, guys.

Good morning, right on.

Great.

And so it's good to hear that loan demand has picked up the last couple of months.

How do you think about.

And what's the organic loan growth level of the guaranty could do.

From here on out.

You're going to be back growing.

And our mid to high single digits or is that too much.

Hey, Brian and this time so.

We're modeling out mid single digits I, just think that's probably the best place for us to at least at this point and kind of.

Project Theres, just a lot of unknowns with everything going on with Covid, but but again the last two to three months, we have been very pleased and seeing increased loan demand and really across our footprint, even and are even and our rural markets. We are seeing increased demand. So.

And I'm very optimistic and what we're seeing and overall.

Trajectory as far as just to state and where we see things going but we.

We haven't we continue to have a very short duration loan portfolio saw paydowns are pretty.

The portfolio just.

Scheduled pay downs are pretty aggressive so we have to backfill quite a bit just to stay even so.

So we're going to we're going to target that.

The mid single digit but.

We could get.

And be surprised and come and better net.

And Kathy I know when we did the call last quarter, you had talked about a core margin and that $3 65 to $3 70 range with the core margin excluding PPP.

As we were on the top end of that range for the fourth quarter, but as we look to 2021.

And that's still the right range to consider for the core NIM ex PPP.

Yes, Brian I think we will continue to have headwinds as bad.

Decreased our cost of funds and pretty well I don't know that we've got more room.

Moving to go there improvement, but where we're getting to the end of that.

And think we'll be look and that about a 10 basis point compression and NIM over time.

And that 221 is what I'm Martin.

Okay. So is that 10 basis points down from us.

The full year or from the fourth quarter's three seven and from the full year.

Yes.

Yeah.

Alright.

And then lastly for me.

Just on the expense side and I heard you all talk about several sounded like kind of onetime in nature noninterest expenses.

Are you thinking about the run rate level for expenses as we go into 2021, and it's going to be lower than.

So you had a little over a little over $18 million. This quarter. Yeah. There was a little bit extraordinary costs. There is a catch up and the IHOP Brady, but I would I'm projecting that about a five 5% increase but think that equals or averages out to a 17.3.

And $3 million run rate per quarter, something like that something under $70 million.

Okay great.

Great. Thanks for the color guys. Thanks Brady sure.

Our next call will be from Brad Milsap, with Piper Sandler, Matt and Ethan Amit Your line.

Our brand.

Hey, guys and my coming through.

Hey, Brad.

Just to follow up on on Brady as a loan growth question.

A copy of it sounded like you incurred some costs and the quarter for recruiting just kind of curious.

And who you brought on board and does your mid single digit loan growth guidance include any impact from it.

In fact, these and these were lenders debt that you brought brought in and during the quarter.

So all aspects of that Brad So, we actually brought and producers and all of our markets, we brought producers and in Houston and Austin.

Dallas and and East Texas.

We don't have anything specifically baked into that that just part of our overall plan to continue to bring in talent and company, which we're that's one of the things. We have worked on the last 24 months really looking at our talent pool and and.

And take really bringing in new talents and the company.

No.

That could be an upside surprise honestly and that's kind of how im looking at it.

And I still being kind of conservative with how we are projecting growth.

Everything we've talked about but we have on boarded producers and all of our key markets.

The card just curious how many folks you brought in and were these primarily from large banks midsize banks.

Kind of maybe potentially.

What type of loan books to day sort of operate with that at their previous locations. So.

So we brought in to producers and believed that in Houston and I believe we bought into.

And Austin area and the <unk>.

Central <unk> region.

And one additional producer in the DFW region and.

One or two more and east, Texas regions all of them all of them are carrier portfolios, ranging from $30 million to $75 million and that range.

Primarily came from midsized banks billions and the $5 billion couple from larger banks I believe.

But thats typically where we're recruiting from banks that are either midsized and larger banks.

Great. That's helpful. And then just to follow up on the margin discussion and Kathy.

Like the rest of the industry you know your liquidity.

It continues to build.

How do you guys kind of think about that are you assuming that some of the deposits start to exit as well or kind of how are you thinking about that kind of a building cash balance number as you move through the year would you start to add more securities or do you think it's best to kind of stand Pat right now and kind of see what happens with loan growth just kind of curious how youre thinking of.

And it.

Well I do Brian and do think deposits will start going back down at some point in time and of course I think on said that the last two quarters.

And as the PPP loans are paid down thinking that more of those deposits would go out and asset turns and it turned out they didn't I think where I think we'll continue to have some extra liquidity. We have bought a few bonds, but not very much and we're probably and we're not going to jump and I'm very very heavily at all just.

There's just not much opportunity there too much interest rate risk, so I don't see us getting too much into bonds and additional amount into bonds.

But.

And I do think there and we'll start.

Some of that excess liquidity will start going out so we're preparing for that more so than the spending that money on the bond investment.

And Hey, Brad I'll add just a little bit to that I mean that is.

And we realize and recognize that we are carrying excess liquidity and the cost of that and.

That is <unk>.

Yeah.

More and more my follow up and anything just because I've just seen this I've seen this movies and many times.

The bond portfolio I see more risk really to a bank balance sheet and.

Security portfolio today than they were this especially on very new new securities and.

And everything going on and we just think debt now.

We are passing some of our shorter short term loans and.

And just not willing to take some market risk, we see and net.

And the bond portfolio and are the bond market right now so we will step into that and we're doing it very selectively and very carefully we were very aggressive and.

And March there were some dysfunction that we talked about I think for that.

We were able to take advantage of and pick up really good yields right now just the risk return does it make sense to us and the security market.

Great. Thank you guys.

Thanks, Brian.

Yeah.

Our next question will be from Matt Olney with statements, Matt and you should be able to Amit your line.

Great. Thanks, good morning, everybody.

Want to go back to the loan growth discussion and Cathy went over some of the drivers for the fourth quarter.

And what about the mortgage warehouse do you have what the end of period and the average balances were and the fourth quarter I'm just trying to appreciate it this was.

And if it's impacted the linked quarter changes.

For the loan balances, yes, Matt.

Warehouse balances were down $25 million during Q4.

And they ended the year ran at $90 million.

Which which they got it up over 100 $100 million during the year I don't I don't have their average balance in front on me, but they did decrease 25 million and Q4.

Which is kind of seasonal pretty pretty predictive.

What we've done and facts.

And then just following up on that Cathy is there anything notable you are seeing the first few weeks of the year of the warehouse and then within your assumption of overall loan growth and the mid single digits for.

For 2021, what are you assuming for the mortgage warehouse.

Mortgage warehouse will be.

Growing a little bit, but pretty pretty flat overall, and we're probably around 200 $110 million and that area throughout the year and that's going to fluctuate obviously due to.

Seasonality and and interest rate.

Are down.

Starting in Q1, which again, we modeled out business.

Q1 is not a big growth area, and Havent been breath, and warehousing and do so.

That big increase I think being net debt increased to pass on that isn't dependent on warehouse and ending per se.

Relatively flat.

Got it.

And then on the share repurchase program I think you mentioned a few minutes ago that the company was actually a little bit and the fourth quarter.

But with the stock now around that 32 range can you talk about the appetite for the buyback at current levels and with the remaining authorization of the current program well, we still have quite a bit authorize the appetite and to be the last honestly is there.

Price per book.

Spain's but have not been actively involved and the last part of.

Actually the last part of December.

We were not because of price and already getting and then.

At this level, we are certainly going to be less.

Net debt to buy more and and all.

And we're prepared if the price is right the dip in the market and by Sunday.

If we can we got the ability to do that both on liquidity and off last years, but.

It's 32 33 would be price.

No.

Okay, and then just lastly, going back to the discussion on the margin.

I think on the last quarter call you talked about the remaining repricing opportunities on some higher cost deposits and it looks like we saw that play out and the fourth quarter with our interest bearing deposit costs come down about 12 basis points how.

How much more opportunity is there to pull that down and the deposit cost front.

Well and it's been awhile ago, we still have more and more room to go the whole CD book will get repriced lower there's no doubt about that and as they start rolling off on those Cds are pretty short term.

There's still we still have close to $400 million and CD.

And as they are rolled and off theyre going to get repriced lower quite a bit more on some of those that are longer term most of the ones I talked about and last quarter, though we are the 12 to 18 month period and for the most part and they're pretty much off and a few remaining but not much but as we re price CB today and there is still good.

And down so.

And again I think on the non interest and our non maturing.

Deposits were.

And some good strides and decrease in them and we don't have a lot more to go there maybe maybe if you click down, but we will get some improvement in on that.

And he's also going forward, so Q1 I think.

And I don't think you will see a 12 basis point decrease that we saw in Q4, but.

But we should be we will see a decrease in cost of funds and finally in the mid single digits.

Per cent.

Matt I will add to that that one of the things tire one and things we did this cycle comps.

Some of the lessons, we learned from OE and cycle, we knew and we're gonna be flooded with liquidity.

And the OE period, and we were more aggressive and moving.

Our rates down quicker.

Quickly and more aggressively which really helped us on the cost of fund side. The other thing last five years, we've been pretty consistent and putting floors in our loans and so that has helped us on that side of it too.

And it's something we learned some lessons and OE cycle and we've been applying those last five years, which has helped us kind of defend that NIM. It's obviously a headwind for us like every bank but.

And I'm pretty pleased with how we've been able to kind of defend that as we kind of went through this year.

Okay guys. Thank you.

There are no more questions in the queue I'll give it a few seconds to sit there and any more questions that come in.

Since there are no further questions I would like to remind everyone that a recording of this call will be available on one P. M. Today on our Investor Relations page at <unk> Dot com. Thank you for attending today. This concludes today's conference call.