Q2 2023 Guaranty Bancshares Inc Earnings Call
So and that coupled with the.
The realized loss 322000 that we incurred on restructuring some of our bankers about $14 million of our securities portfolio.
That would get us to core or operating earnings for the quarter of $7 7 million was.
Which represents an earnings per share of <unk> 65.
Compared to the reported earnings per share of 82.
Sure.
Then the reported ROA is 1.17% and ROE is 12 eight 7%.
So looking at our margin little little closer our net interest income was $24 7 million for the quarter that equates to a fully tax equivalent net interest margin of 319%.
Thats down five basis points linked quarter.
And then looking at some of the major components of that our loan yield did increased 24 basis points and that's all meant to point the $2 4 billion average balance of loans outstanding.
And our securities yield increased approximately 16 basis points.
And that's on the average balance of 300 or $631 million remember we did have those.
Short term lower yielding treasuries roll off actually the for the first six months totaled about $45 million. So far this year.
So our total earning assets yield increased 24 basis points and that's on the.
$3 1 billion in average earning assets for the quarter.
Then looking on the liability or the costing side we saw.
Increases in our.
Interest bearing liabilities in order to remain competitive and to defend our customer deposit base. Our total cost of deposits, which includes non interest bearing.
Increased 35 basis points too.
To 1.53%.
Which represents a beta on our total cost and deposits of about 74% for the quarter.
Then looking at the non interest income section our App already discussed the onetime gain of $2 8 million.
Gross before tax effect, and then that coupled with the.
Realized loss of 322000.
Our core non interest income total for the quarter to be $5 4 million.
Pretty much.
In line with with what our guidance is which guidance is now about 20 between 20 million and $21 million.
In the noninterest expense category, we did the increase in expenses 504000 linked quarter.
We detailed in the press release, some increases FDIC insurance increase in software cost, increasing which are which will be ongoing probably and then some professional fees that were really related to one time charges.
Mainly related to our annual meeting.
So our expenses are pretty much in line with our expense budget.
For the first six months.
Our efficiency ratio as reported in the press release was 62.84%.
Now I'll turn it over to Shalane and Shaw.
Continue on.
Thank you Cathy and I'm going to cover the loan portfolio and credit quality and lower credit losses.
And as Kathy mentioned, our grasslands did decrease by about 44 million. This quarter that was primarily in our construction and development and our.
Our CRE portfolio at Hudson construction box that has been on the construction loans that have been on the books for a while now.
<unk> App and also CRE has been paying down and paying off ties mentioned several times in the past, but we have a fairly short portfolio that turns over very quickly. So a lot of it is resulting from that.
Although lending as Florida's underwriting tightened in interest rates and increased we still originated about 65 million in new loans during the quarter at an average rate of eight 1%.
And that compares to the first quarter, we originated about 93 million at an average yield of 727%. So we are now able to start getting this those loan yields up on new originations.
Our nonperforming assets are historically very low this quarter at 0.11% of total assets. We were finally able to resolve to SBA guaranteed hotel relationships in Houston that we acquired as part of Western Bank in 2018.
And that had the balances of around $6 7 million.
Charge offs related to those two relationships were really minimal at about $90000 that we hope to recover some if not all of that charge offs and then we also resolved another wonderful family construction loan that had a book balance of about $1 4 million last quarter also with a very minimal charge offs.
CRE and office related brands has been a hot topic recently, but we really don't have any concerning concentrations in either of those areas. As we mentioned last quarter during that the risk management topics concentrations are something that we monitor really closely and really make.
Sure that we don't have anything significant.
And those area CRE represents about 38, 2% of our total loan portfolio.
And office related loans represent only about four 4% of that and have an average balance of about $541000.
During the quarter, we had no provision for credit losses.
We adjusted a few of our qualitative factors to estimate for the industry level CRE and all this concerns and for the higher for longer sentiment. That's out there is that plays out it could cost and cash flow stress for some of our borrowers.
So we adjusted the qualitative factors to account for that.
With the decrease in our loan portfolio and the resolution of those nonperforming loans that I mentioned previously our provision wasn't necessary this quarter.
Our quarter end ACL coverage was 131, 36% of the portfolio.
And overall the quality of our loan portfolio remains strong.
Although we do expect some potential challenges in the coming months, we believe that our overall credit metrics will continue to benefit.
From the good economic conditions and tailwind that we have here in Texas right now.
Yeah.
Onto the next slide we've got deposits liquidity and capital.
As we mentioned last quarter in many times before we have a very granular and historically stable core deposit base.
At quarter end, we had nearly 87000 $86000.
Deposit accounts with an average account balance of 29693.
And excluding public funds and the Guaranty bank owned accounts, our level of uninsured deposits with 22, 3% of total deposits at quarter end.
We implemented those enterprise seed ours, and Ics networks during the quarter, which provide additional FDIC insurance security to our CD and money market deposit or is if they choose and we've actually had several of our customers sign up for that already.
And we're using the reciprocal feature with interest by right now so we're able to retain those deposits.
Still providing our customers with the additional FDIC insurance to cover their entire deposit balances.
Kathy mentioned the decrease in our deposits during the quarter. So I won't cover that but that was offset by an increase of about $50 million and brokered Cds, which we obtained primarily to test those types of deposits as a contingent liquidity source for us we haven't.
Done that in many many years that certainly not since I've been at the bank and I don't even know if ties.
Ever used brokered Cds in his career, but we wanted to make sure that we tested that as a source of a contingent liability for us, but we don't really expect to rely on that going forward.
Yeah.
And speaking of liquidity our liquidity is good our liquidity ratio was 12, 9%.
As of quarter end, and we were able to pay down some of those federal home loan bank advances that Kathy mentioned by about 4100 $45 million during the quarter.
We've got contingent liquidity.
Doubt.
One 5 billion, that's available to us through either federal home loan bank advances.
The reserve Bank programs and then we have a couple of correspondent bank fed funds lines and our revolving line of credit as well.
Okay.
Our total net unrealized losses on investment Securities is still reasonable at about 56 million of which $21 4 million is attributable to our available for sale portfolio and included within a S. C I.
Yeah.
On to capital our capital ratios remained strong.
And where do you think some of the excess capital now like Kathy you mentioned to repurchase shares of guaranteed stock at good prices and an intrinsic value for our shareholders.
I also wanted to note with respect to capital that our total equity to average assets is currently nine 1%.
And even if we had to realize all of the losses in our portfolio for whatever reason, we don't expect ship or capital would still be good at a ratio of eight 3%.
So we're in a pretty good position there.
That's the end of our prepared remarks, I'm going to turn it back over to known us for Q&A.
Thank you Shelly.
Our first question today for our Q&A session is going to be.
Matt Olney with Stephens.
Matt can you on mute your line.
Yeah. Thanks, good morning, everybody on a map.
Matt.
On the loan balance front I see that the loan balances contracted this quarter and I guess the commentary.
Suggests that it was a lot of the pay downs in the construction portfolio.
I guess, just taking a step back any any broad commentary on borrower appetite for loan growth.
In recent weeks and months, especially at these current rates. Thanks.
So Matt this is Todd.
The loan demand is definitely softer with current rates, which we kind of expected I think makes sense. So we're seeing softer demand, but we still see activity, but it is absolutely softer than it was last year.
Okay. Thanks for that and then on the.
The funding side.
Looks like you brought down the <unk>.
Shelby balances.
On average basis, but also even even more in the period down to like around $200 million yeah. What's the current thoughts around <unk> as you move into the back half year. It terms of the.
The balance.
At this <unk> I think we're going to keep them pretty steady I don't see those are spiking up at all probably are I would say around that $200 million mark would be a pretty pretty good target.
Any any color on those broker Cds that you brought on as far as the the rate and the overall duration of those Cds.
Yeah. This is Chile, and one of them is a six month maturity and one of them for nine months maturity and they're both at just over 5% on rate.
Okay.
A $25 million each site.
Okay, Thanks for that showing in.
And then on the on the noninterest bearing deposit side I think the average balances were down around $55 million versus the average balance in the first quarter any any notable trends that you saw during the quarter as far as.
The pressure there with any.
Specific month in <unk>, just trying to get a feel for.
Where this could land over the next few quarters.
I'm really looking back and especially in Q2, it was pretty steady about a third a third a third re compete month.
So there wasn't anything notable.
Notable there any difference, but we do think we said earlier I think we think we're going to be probably near the 30% or high 20 percents when it when it's all said and done as people start putting their money back back to us.
Okay. Thanks for that Cafe, and just and then just lastly, I guess, taking a step back on the net interest margin. There was some pressure in <unk>, but quite a bit less than I was expecting.
Assuming rates stay in this higher for longer range any any color or commentary on where you think that margin will.
Will bottom out and any predictions on the timing.
Well I think we've said in the past and will continue to defend it and we think we can stay above 3%.
Yeah, I think rates are going to continue to go up, but we're seeing where we're being able to reprice some of the asset side pretty pretty quickly to offset the increase in the cost to defend our customer deposits as I said, which will continue to do well.
I will will.
Balance defending the NIM, where we think it needs to be made while at the same time defending our customer deposit so.
Our goal is and the way we see if we can we can keep it above the 3%.
Level.
Okay. Thanks, I'll hop out of the queue.
Thank you Matt.
Our next call will be from Michael Rose with Raymond James.
Michael can you on mute your line.
I did thanks, thanks for taking my questions.
You guys had talked previously about.
Noninterest expense to asset ratio kind of around two 5% tick a little higher this.
This quarter on a core basis, just wondering any updated expectations and just broadly how we should think about expenses moving forward, just balancing growth opportunities and potential additions to staff with cost containment efforts. Thanks.
Yeah, Michael that continues to be our go to 5%. We're right added I know, we're just a tad over it but not much but that would that would get us that should get us then.
At $82 million to $83 million the way, we see it range for the expenses for the year and I think we can certainly be in that in that.
Area.
Yeah.
Great. Thanks, and just with capital building a little bit this quarter just because of the.
The balance sheet shrinkage I think you guys have kind of around 450000 shares left to repurchase stock stood around one two a tangible just remind us how you guys again think about intrinsic value and if you were to fall.
Fully utilized that program before it expires next February or next excuse me next April what would you look to potentially re up thanks.
Michael This is Todd, yes, we would re up the program and it's very likely will extinguish that program. Prior to its next whenever it is I think its February when expires. So we would re up the program and plan to.
Great and maybe just finally for me. So obviously some of those credits that you guys have previously talked about kind of got resolved can you just give us a kind of a lay of the land.
And what Youre seeing from borrowers and obviously I know you highlighted that the CRE, but is there any broad strokes in terms of credit that investors should be concerned not concerned about at this point just given the credit quality continues to be really really good outside of those.
Those credits that you had previously identified thanks.
Yeah Michael.
I think without a doubt like I said the demand.
This is down credit demand is down our borrowers are more cautious with rates, where they are that being said the economy. Overall in Texas continues to be strong and we're still seeing a lot of activity there.
Theres not a specific area I think office gets talked about a lot I think that's.
Our concern probably in every market, but it is certainly less concern in Texas is as I think it is in east and West Coast markets.
And obviously retail has been an area that we've been cautious on for years I think most banks Ams as well, but overall I mean, we're very pleased with the strength of the economy and the strength of our markets, but that being said. It is there is a slowdown and a pullback in activity certainly on the <unk>.
<unk> side and so we're just we're.
Being cautious with that and.
But.
Theres not a specific area that I see at this point.
That's a significant concern I think banks are being pretty thoughtful and how theyre looking at risk and have been even going up into this point. So I think it's we're pretty hopeful that the remainder of the year is going to be pretty stable at least at this point.
Yeah.
Great. Thanks for taking my questions.
Sure Michael.
Our next question is from Graham <expletive> with Piper Sandler.
Graham can you on mute your line.
Yeah, Hey, Hey, good morning, everybody, Hi, Graham Good morning Graham.
Thanks for taking my questions I, just wanted to circle back on the loan growth and maybe just the balance sheet growth front of things.
<unk>.
I guess as you look towards the back half of this year, maybe even into 2024 are you guys thinking that.
That loan growth might continue to be flattish to down or do you think that might be able to see some positive net growth I guess, if if paydowns were to subside a little bit here in the back half.
Graham I think flat to down as a possibility just given the short duration of our loan portfolio and the <unk>.
The overall environment.
Hum.
Borrowers being a little less more risk averse and our and our underwriting bands.
Very very.
Strong in and considering the environment so.
There's a good chance, where it will be flat to down.
Okay. That's helpful and then I guess the other piece.
I wanted to touch on there is.
I I assume bonds will continue to run down a little bit liquidity balance is probably the same is there a level of earning assets you guys would like to stay above is that $3 billion number.
Important to you guys or is it kind of just I guess, a little more fluid than that.
It's more close in that I mean, we're more focused on intrinsic value. Obviously the earnings stream of the company, where we can share the opportunity to be able to buy our stock back like we are doing to be a really good opportunity for us. So we're doing that aggressively we're going to create a good earnings stream for the year not a record year, but a good earning stream.
We are.
And we have a really strong balance sheet across the board. So those are kind of our three priorities and.
As far as total assets land or is that I mean, we don't look at it from the standpoint, we wanted above a certain number its going to stay above its going to stay.
Above.
And an area that we're comfortable with.
It's not there's not a magic number that we just we felt like we have stay above.
Okay. That's helpful. And then just wanted to shift back to the NIM quickly.
I think you had you talked about in March that the NIM was three 2% for that month I was wondering if.
If you could share what the what the NIM was in June and then.
Maybe how you're how you're seeing a trend in the near term I know you said about 3%, but just thought it was is impressive that you guys were able to essentially keep it flat with that March number throughout the entire second quarter.
Do you have that shalane in front of us.
I have it but not in front of me Kathy.
I can get it and send.
Send it to the analysts on the call.
Okay.
Okay, great that'd be that'd be awesome, and I guess, one last thing for me is just sort of housekeeping, but the fee income side I saw there was that the annual bonus this quarter.
We expect I guess are you guys expect these kind of drop back like $5 1 million in <unk> and then.
Maybe $5 2 million on a core basis once you back out that Daniel service provider and.
The other one time items that happened this quarter.
Graham that's lab rat, all with what I have just a little bit less because of that bonus amount coming in.
The debit card side, but.
Everything else being pretty per se okay.
Okay, Great Alright, that's it for me guys. Thank you very much. Thanks.
Thanks Joanna.
Our next question is from Brady Gailey with K B W.
Brian can you on mute your line.
Hey, Thanks, good morning, guys.
Okay.
But I'm just wondering how aggressive you guys will be with the share buyback going forward. I mean, you took a nice step up in activity this quarter.
Do you think like the two to repurchase activity is kind of a good run rate for the next quarter or two or how do you think about kind of the cadence on buying back more stock here.
Friday I mean, that's by.
Buying back our stock where it is currently valued as a capital priority for us. So I would say that the run rate in Q2 as a good run rate.
And is there when you think about capital there is there one ratio that you focus more on and if so kind of what's the threshold on where you want to keep that ratio at or above.
Well I mean, we obviously are looking at all aspects of our capital, but we're just.
Comfortable where our capital is given kind of where our asset quality.
Is the.
The company and the.
The condition of our bond portfolio and our earnings stream. So I would say, 9% kind of a new seven per bank. So we look at that just on pure leverage ratio is kind of a kind of a bogey for us and we think that we're able to we're going to be able to stay above that and still buyback snip the amount of stock just given the.
The earnings stream of the company and kind of where total assets occurred with our coal assets are doing and again the confidence in doing that is the asset quality the company and the condition of our bond portfolio and our earnings stream.
Those three factors give us confidence to.
Take this opportunity, which we consider to be a good opportunity to buy back stock at very attractive prices.
Not dissimilar to what we did.
<unk>.
The repurchases we made post COVID-19, we felt like that was a great opportunity for us to add real intrinsic value for our company and we see this as the same opportunity.
Alright, and then lastly for me I think I heard Cathie say that you expect fee income to be around 20% to $21 million. This year that did I hear that correctly.
Guessing that excludes the $2 8 million.
Million onetime gain yes, that's correct right.
What we said just earlier I think about a <unk> five point to 5.2 quarter for the next two quarters to get us to about something under $21 million excluding extraordinary.
For the year.
Okay, great. Thank you guys.
Thanks, Brian .
Thank you for your questions and I'm going to remind everyone. The recording for this call will be available by one P. M. Today on our Investor Relations page at <unk> Dot com.
Thank you for attending in this concludes our conference call.