Q2 2021 Guaranty Bancshares Inc Earnings Call
$11 million net.
The annualized the average for the full year would be a 6.3%.
So that's a little bit of detail in our in our core loan products.
We did fund more loans in Q2 than we funded in Q1, but again I think the wildcard here.
Offs. They were elevated also in Q2.
Also we had some.
2 significant loans are pretty big loans pay off.
Right at the end of Q2, the total rate at $30 million, so even with that we still had.
Pretty good loan growth ex PPP in warehouse lending.
Our Q3 pipeline remains strong.
So we're optimistic that we'll be able to book new loans going forward again, I think the wildcard would be the pay offs debt.
That either come from a sale or from a refinance it at.
Yields on terms that are just not attractive for us I think Todd is going to speak more to this here in just a little bit.
Looking at the deposit side.
Deposit showed another increase have an increased $58 million linked quarter and thats $247 million year to date. So that's about a 22% annualized increase for.
For 2021, so far.
Again back to the high liquidity impact our deposits our deposits have shown nice increases were adding new deposit customers no doubt.
But some of this increase we know is due to the government stimulus programs, the PPP funding and even consumer savings pattern. So we'll see how we will see how that.
Plays out in the second half of 2021.
Our non interest bearing deposits currently are 36% of our total deposits.
They increased $50 million linked quarter and $149 million year to date.
60% of our year to date loan growth.
Being in non interest bearing deposits.
Then looking at our shareholders' equity it grew 7.7 million linked quarter and $15.1 million year to date again this quarter, we did not buyback any stock and we paid a 20 David then.
Actually for each of the 2 quarters in 2021.
Looking at the income statement as Todd alluded to we're very pleased with our net earnings performance for the quarter and year to date.
And if you look back our trailing 12 months earnings.
Are at historic highs, reflecting on earnings per share of $3.40 for <unk>, we've had for a really strong quarter. So.
And we see that continuing and even the second in the back half of 'twenty 1.
As we look at our net earnings per.
And do keep in mind net all prior periods have been adjusted as if the 10% stock dividend we issued in.
Q1 of this year was in effect for for each full period. So.
Those have been adjusted accordingly.
Our net earnings for Q2 were $10.4 million at <unk> 87 per share.
Compared to linked quarter of $11.1 billion on 91 per share.
That's an annualized ROA and ROE for Q2 of 1 for 2% and 14.6 4% respectively.
Yeah.
And again this quarter as we have I guess now for the last 5 quarters. We are we have provided additional tables and these releases that highlight our net core earnings which is earnings before credit provisions or releases.
And before income taxes and before.
PPP effects on <unk> PPP.
So in the table.
This release, we do have our net core earnings.
I guess, maybe a parenthetical note here they've done a b there is an error in these that in these tables. This is this is.
Non-GAAP and its supplemental information only.
I think that.
Errors is really immaterial, but in full disclosure that everyone. We're going to issue an 8-K revision on these numbers again it does not affect our income statement does not affect the balance sheet.
But to give you a full disclosure on trend analysis, I think we need to to restate. This and again year to date is correct.
In Q2, we're going to show our net core earnings of $9.8 million and in Q1, it's going to be 9.4 million that was really just just reversed the 2 quarters reversed because we.
Put all of our cost of book PPP loans in Q2, when it should have been spread out in 2 years again year to date is correct. This is the only supplemental information in it and it's non-GAAP, but full disclosure so that'll be coming out and we've talked to most of our analysts sorry about that.
Okay and continuing on.
We still have headwinds on our margin justice.
As I said, driven mainly by our excess liquidity accounts.
So I guess from some positive notes on that I mentioned, new loans booked in Q2 outpaced the dollar amount booked in Q1, but I guess, even better are certainly good news is the yield on these new loans did not drop is very consistent quarter to quarter and youll notice in there we have a table on our LOE.
Non yield ex PPP loans was 482% in Q2 and that compares to $4.7 9% in Q1.
You also might have noticed our investment securities did increase during the quarter about $40 million.
We're buying some mortgage back and treasuries, but really not adding significant duration risk.
And don't foresee that going forward really even with the excess liquidity.
And then on the on the deposit side looking at our cost of deposits.
Which include non interest bearing deposits decreased 3 basis points during the quarter.
224 basis points in Q2.
And that compares to Q1 of 27 basis points. So theres about 3 basis point drop and then a year ago, we were 54 basis points.
So we've dropped them quite a bit.
And I think there'll be a little bit more room for some decrease but it's going to be just very few basis points as we look forward most of those.
Deposits have been re price now and be pretty consistent.
After our margin and Youll notice, we did have a reversal of our allowance totaling $1 million Salim will.
In more detail on that in here in just a minute.
Looking at our non interest income we did have a flat decline linked quarter that was driven mainly by an 11% decrease in our gain on sale of mortgage loans and mortgage fee income.
Our our interchange and debit card fee income Youll see was $1.9 billion.
That's that's up due to volume increase and also our annual bonus for our Mastercard contract that came in this quarter totaling 225 balance.
Okay.
Looking at our expenses, our non interest expense increased 391000 at 2.3% linked quarter about <unk>.
2 thirds of that is in our employee compensation cost.
Due to continued improvement in earnings we did accrue more bonus payable during Q2, we accrued about 300000 more in Q2 than we did in Q1.
And our bonus payables that's related to earnings.
That really pretty well accounts for.
Almost all of that increase.
I think our run rate looking forward on expenses of <unk> $71 million to $72 million range net.
Should be achievable.
And our efficiency ratio as stated was 61, 2% pretty comparable to Q1.
And then if you ex out the PPP.
And looking at it it's about 64, 6% 64, 7% both are slightly up.
From linked quarter.
As a recap of the income and balance sheet and income statement I'll turn it over to show Inc.
Thank you Cathy and I'm going to cover our COVID-19 response deferrals and PPP for the quarter.
With respect to COVID-19, all of our locations our ethane Oliver on for laser back on their offices and branches.
However, we are continuing to monitor put development from <unk>.
Tell us are there any other virus variants.
As volume increases.
Hospitalizations, Unfortunately in Texas from <unk>.
Cross the nation.
You can take measures to increase cash flow will contain or.
<unk> per second 19 downturn can keep everyone safe and and we can spread at.
On the virus.
Okay.
As of June 30th there are no remaining principal and interest deferrals related to Covid.
Our 7 loans totaling about $42 million that are primarily hotel and hospitality that remain on interest only deferrals are for.
I have an index or expected to return to contractual payment.
The third quarter of 2021.
All of those loans.
Seem to be doing well occupancy levels, and creating and we don't expect really any issues with both returning for contractual payments.
We did have and then quarter for loan forgiveness.
<unk>, 1 and we also originated quite a few additional land on their PPP team on it.
You can see here for PPP, 1 we originated last year in 2020 about $210 million.
Loans and as of June 30, we had $183 million at that 210 million for which.
Which is about 87%.
We really were excited to see the STI finally for getting some of that on <unk>.
<unk> SBA loans that we originated during that first round guidance.
Second quarter.
So during the first and second quarter of this year and we also have participated in <unk> 40 per call. It 3 but I think technically at TEP.
We originated about a little over 100 million.
On the lens.
And their Pvp THC about 1300 borrowers.
Not yet taking forgiveness applications on loans were still kind of monitoring the SBA.
Development and further guidance from them on that but we hope to be able to start taking forgiveness applications on that Tim.
Now I will turn it over to Tyler to talk about Ireland fulfilling out and growth plans.
Thanks for laying so the loan portfolio remains strong and asset quality. The bank remained strong we still have 60% of our loan portfolio on rate floors, which has helped us on defend net net interest margin as Kathy mentioned, we had right at 115% growth in loans for the quarter. So.
That's mid single digit growth.
For kind of annualized I'm going to continue to stay with that as kind of a goal of mid single digit maybe higher single digit and not not say a double digit because we're seeing our portfolio is a pretty short duration. So it all.
It always has a lot of pay downs, which is.
A sign of a healthy portfolio.
But we're also we also saw in Q2, some pay downs that we really werent anticipating to happen when they happen and so but we are our pipeline is strong and our pipeline across our footprint is really strong we continue to be very selective in the credits that we look at and are willing to.
To bring into the bank and so we're going to continue to.
Our credit quality and credit standards to where they've been but even with that we're able to find a really strong credits and good opportunities across our footprint. So we're encouraged by that we do have we.
We do have 2 additional locations are going to open up in Austin, MSA and Georgetown Lake way in Q3.
We have strong lending teams there so.
We're pretty optimistic about our continued growth in the Austin MSA as well.
As far as asset quality again are not form assets are really low non accruals are low.
As you saw Q1, we had some charge offs, which were almost I think 90%, 95% related to 2 or 3 loans, we acquired with westbound bank.
On a half years ago that we had actually had a reserve well in access of what we actually experienced in losses. So we had some releases, but net of those acquired loans or charge offs have been pretty nil and again overall asset quality company remains really strong and that's.
That's always been our primary focus for our company and where it's going to continue to be and we're going to continue to look for opportunities to grow the loan book, but also do it in a way that though we're cup with as far as the risk profile of what we're looking at.
We did have a.
Stephane <unk> St will talk but we did have a negative provision that for the quarter, we put in right 13 million and last year, if you'll remember.
With Covid.
With our asset quality, our intention is to hold as much as we can we just think where we are.
When the credit cycle with growth it makes sense, but we're still we're going to have to release a little as we go along just to maintain them Tegra day of our models and so we did have a small provision release, we may have some more on second half, but the intention and the goal is to be pretty conservative with that to try to hold as much as we can going into 'twenty.
2.
Shlaim on just baked a little more detail on our seasonal.
Yes, Thank you Ty.
So on $1 million reversal provision during the quarter was primarily due to reduction in Covid specific key factor, which I talked about.
Several of our prior calls.
What we did back in March and April of 2020 it on.
I see from model has standard key factors.
We've got 10-Q at that range.
Everything really started going bad in March and April 2020.
And it was really all related to COVID-19, rather than try and make adjustments to our net skin standard 9 key factors.
Davidson benchmark system baselines.
<unk>.
Based on macroeconomic factors in the Texas economy that added about 55 basis points to our reserves that were specifically, resulting from from carbon so as the Texas economy and starting to share some positive trends from that baseline that we had back in March and April 2020.
It's really showing some interest net lease.
Then cautiously and winding that Covid specific factor and then while still making some adjustments to our regular set of key factors.
During the quarter, we reduced our COVID-19 specific TCR by about 14 basis points.
And yes, we're anticipating in the second half of the EBITDA continuing to and why not.
Assuming that the economy continues 10 credit and we're able to you know not seen really any major negative effects of the experience in other Kevin issues going on so that's still a bit on now and we're not sure, but we've modeled out T cells or the end of the year if our growth.
That expectation of around 67% and we do slowly unwind net that COVID-19 specific factors throughout the year, we will have a reverse provision of approximately $3 million debt again.
That's assuming that COVID-19.
It continues to earn credit and mountain decline.
Sure.
Not make the economy and other factors worse.
So as on.
We ended the second quarter, our allowance for credit losses, as a percentage of total loans was 167%.
And excluding PPP loans debt, 179%.
I will now turn it back over to you now for some Q&A.
Thank you Celine.
It's time for a Q&A session.
And our first question today will be from Michael Rose from Raymond James.
Michael you should be able to on mute your line and speak to the panel.
Can you hear me.
Hey, how are you guys. Thanks for taking my question.
Just wanted to dig into the pipeline a little bit I know you guys have hired from lenders how much of the pipeline is coming from some of those lender hires and how much more of it is just generally comment on the market and just general business growth and I was down there to visit with you guys on a couple of other banks last month and it did seem like Theres a lot of activity and are on the Dallas market, but if you can just give us an update.
On what's going on there and maybe some of your other markets just to get a little better handle around what the pipeline.
Like it seems like it continues to growth. Thanks.
Yeah, Michael So the pipeline has been growing at.
Probably a stronger pipeline we've had in our history really is.
It's primarily common from the DFW and Austin markets and then also we're seeing some strength in Houston.
On the East, Texas region like I've mentioned before has had some real strong.
Activity.
After COVID-19 and that's been really encouraging.
But as far as the overall dollars I would say, it's probably 50%.
60% of Dallas, Austin, and then 30% Houston the balance being in the East, Texas region as far as the breakdown on that I would say probably a third of that is new producers. We brought on in the last 18 months. The rest is just kind of our.
Normal on an ongoing business development efforts.
Okay, Great and maybe just 1 follow up.
Wanted to talk about the commentary on the press release around the margin and the ability to hold it here should we take that to imply that kind of ex the remaining PPP fees that you guys think that there is enough in place even with with the yield curve flattening here for you guys to actually maintain and potentially expand the core margin I know you grew securities this quarter.
And maybe if you can just give us an update on <unk>.
Purchasing more securities and grow on that as a percentage of assets as part of the plan to help stabilize the margin and hopefully grow NII.
Yes.
Go ahead Kevin.
Ill take that I did say mentioned, we do continue to have headwinds the.
We were encouraged that the new loans book, we're pretty steady there, there's still a little bit less than what we said the total loan book is which is rather it for 8.2% I think we will still have headwinds I just don't I think we could drop a few basis points, but net net I think we can defend it and nothing significant but that I don't see us.
Growing our non net interest margin from.
From here in the near future.
Yes, let me add on all of that Michael.
What I was going to say too that we think we can defend the margin with Florida, we have with kind of our cost of funds.
We think wouldn't defend the margin, but it's not going to we don't say growing until yields start growing with our bond portfolio, we remain pretty concerned with how we're looking at that.
We could move $200 million in Securities Tomorrow, and we would it would improve our short term income. We just think that that's probably not with rates where they are.
Like a lot of people were seeing real inflation, we'll see whether that's long term or not but we just don't think it's it makes sense long term for us to move significant dollars on securities, but at the same token.
We're not willing to make the battle on the other side either just stay on cash. So what we've been doing is there is strength in the bond market with the yields that we are starting to buy in tranches as we go along each quarter, we will see the bond portfolio grow each quarter likely but it will not be significant so that is costing us now, but we just think longer.
Term it makes sense for our rates are today.
But again, we think we can defend our dam, we don't think it's going to expand until overall rates start moving in on a favorable direction for banks.
So with that in place and with the expected loan growth, which seems like it's going to be a little bit higher than mid single digits. Do you actually think you can grow NII dollars over the next couple of quarters.
I'm going to say no on that Michael.
I would be pleased if we do I'm, just being cautious with with overall.
The overall interest rate environment, where we are.
And the fact that we're just being conservative with how much liquidity, we are setting on versus buying securities and so.
Our goal the last the last you know.
T months and remains going forward the next year or so is to defend our name.
And then obviously be positioned well when rates start moving up to some normalized level to be able to expand at that point.
Okay. Thanks for taking my questions I'll share my Sigma.
Our next call will be from Matt Olney with Stephens.
Okay.
Hey, guys. Good morning America.
Hey, I wanted to ask about M&A and we keep hearing data points that the M&A chatter is improving and Texas love to get your take on just Texas M&A chatter overall, and then and then how engaged the bank is with M&A discussions with.
Other banks and then when you think about the M&A for Guaranty remind I said the strategic priorities for the bank.
So Matt this is Todd. So we are hearing a lot of additional talk M&A talk throughout the state without a doubt probably as actavis.
I've heard in a long time.
And we're in those conversations I would say any bank below a $1 billion pretty much where at some point. We're in the conversation we are going to be pretty selective with how we approach that like we have been.
It's a bank that makes sense for us it fits our fits kind of our strategy and our 1 of our 4 regions and debt we can.
Do a deal that makes sense, it's not overly dilutive to our company.
And then where we're very very interested.
We're going to be we're going to be disciplined with how we approach that and so where we have we've had a lot of conversations will say about develops into an actual transaction, we're going to stay like I said within our 4 regions I would say kind of the profile. We're looking for is 200.
$2.600 million.
We would look on a larger deals on that but probably not a smaller deal.
But again, it's has to be on the 4 regions. It has to be a transaction that we banks in markets that would be a good cultural fit for our company. There are markets, we want to be in that the economics makes sense for us.
We just finished our strategic planning kind of updating our strategic plan post Covid and we did some really careful.
Modeling on our company going forward. The next 3 years and just.
Without swinging for the fences just basis without including any M&A, we create a lot of intrinsic value of this company in next 3 years, and so kind of our litmus test on everything.
M&A or.
Other strategic changes, we're making is that it has to be accretive to that plant and.
And execution risk, we have to be comfortable with that so anything we're saying that's accretive to that plan and we're moving forward with but if we can get comfortable that it's accretive to the plan that we think we can execute on pretty.
Pretty constantly then we're going on we're going to be disciplined with how we approach. It. So we are more interesting in the east, Texas region that we work pre COVID-19. The like I've mentioned, we're just seeing real strength there.
There's a lot of relocations going on.
On the country.
And.
We even within the state to some of the more rural markets with remote work and Thats adds from real strengths on those markets. So we're looking at opportunities in the East, Texas region as well as the Metro Richard Schramm.
Okay. That's perfect guys. Thank you and then switching gears over to PPP.
Per per round, 1 it sounds like theres, not many more fees to recognize but round 2 interest over $2 million of unrecognized fees.
I heard you say you are not yet taking debt forgiveness applications, yet around too. So I guess the credit question is how are you guys thinking about the pace of recognizing those remaining states.
Well I'll pick that up.
Matt we have not the open that up I think we're going to open it up pretty quick I think the pace will go faster than Q than round 1.
I don't we don't have it all projected to hit in the second half of the year, but we have probably 2 thirds of it just in our mind projected none of it's in the budget, but it all depends on obviously the pace of the SBA.
Round, 1 really kind of it once they get going with bank.
Frank Thats pretty quickly so we still got close to $3 million in round, 1 and round 2 to book on these $2.8 million.
So we will get some of that in the second half of <unk>.
This year.
Okay, great. Thank you guys.
Okay. Our next call will be from Brady Gailey.
With <unk> yet.
For any of you should be able to on mute.
Hey, Thanks, Good morning, guys good morning, Brian.
So you guys have been fairly active in the buyback the last couple of years 2019, and even more so in 2020.
And with the stock having.
All bank stocks for a pullback, but you guys are on there to the stock is a little cheaper now, but maybe just.
Good thoughts on how you think about the share buyback.
But we're going to continue to be opportunistic on that Friday and.
For the current valuation is we're starting actually to run numbers on it and certainly.
Our stock below 30 starts getting pretty attractive as far as just again kind of what were modeling out transit value that we create over next 3 years and kind of what we see as far as just value the company.
No.
We maintain a lot of credit and the holding company. That's on content I think it's currently at $10 million in it.
Excess capital so we can take advantage of.
Buyback opportunities and we will as we say.
That the valuation makes sense for a similar to the 10 million or so we've repurchased in 2020 with evaluations were really low and if we see opportunities to buy guaranty, we'd much rather buy guaranty and another banks. So we will certainly be on their aggressively doing it.
Okay great.
Good to hear.
More positive total loan growth going forward, but maybe just I know you gave a little bit of color on hiring but.
Has the pace of hiring slowed as it consistently.
Consistent like what are your plans on additional hires from here.
It's probably slow Brady, we did a lot of that in 2020 kind of during the downtime kind of getting prepared for the opening.
And so we on boarded quite a few lenders through our footprint.
Last 12 months, so from here, it's going to be a slower pace other than just replacing lenders maybe but.
We don't we're not going to have a lot of net growth on the credit side as far as personnel would be my estimate at this point.
Okay, Alright, great. Thanks, guys.
Thank you.
Our next question will be from Brad Milsap with Piper Sandler.
Okay.
Hey, good morning, guys am I coming through Yeah, Brad Hey, Brad.
You've addressed most everything was just kind of curious on the $30 million of pay offs that you mentioned that came near the end of the quarter.
You said you kind of weren't anticipating those just curious.
Were those pay offs as a result of other banks coming in and just undercutting you rate or terms or these just.
Just.
Construction loans, they got termed out in the secondary market or something else just kind of curious what might be behind some of those pay downs.
Brad I think the majority of the larger 1 was actually a transaction that moved that into a mine.
Okay.
Okay can you hear me okay.
Okay.
I think 1 of the large ones.
Last week of Q2 was a loan that moved out into a money center bank on a non recourse basis and that was kind of the design upfront that that customer is consolidating around a $250 million a block to go into a REIT and we're doing some interim financing for them as it goes moves too that in much smaller.
All of our pieces and these rolling those into non recourse financing Malone for money center banks and so that we thought was going to come in Q3 is actually already backfield. Another request as part of that program. So that was 1 of them. It hasnt been a situation, where we're losing credits 2 direct competitors, but there are.
There are non bank lenders out there that are doing some pretty aggressive things and we're seeing some opportunities on some frankly, either our pricing our structure were actually recommending clients take them. If they are going from full recourse and nonrecourse things like that or our longer term lower rate loans.
We're recommending those clients take those opportunities and understanding that there is still our customer we will still do business with them.
Got it great. That's helpful. I appreciate all the color today sure.
Net.
Okay.
That concludes our Q&A session for today I would like to remind everyone.
There will be a recording of the call available by 1 P. M. Today on the Investor Relations page at <unk> Dot Com. We appreciate you attending today.
Yeah.