Q4 2023 Guaranty Bancshares Inc Earnings Call
Good morning, welcome to guarantee Bancshares' fourth quarter 2023 earnings call.
Noah Branch: My name is known a branch and I will be your operator for today's call.
Noah Branch: I want to remind everyone today's call is being recorded.
Noah Branch: After todays prepared remarks, there will be a Q&A session and our hosts for our call today will be tie Abston, Chairman and C E O.
Schilling Jacobson: Schilling Jacobson executive Vice President and CFO.
Tie Abston: Tibet to begin our call I'll turn it over to our CEO Tae Ashton.
Tae Ashton: Thank you Donna and good morning, everyone welcome to our fourth quarter of 2023 earnings call I'm coming to you from a chilly Mount plasmid bid, which is 15 degrees and <unk>.
Tae Ashton: <unk> cat beer in Addison, where it's warmer at 16 degree so.
Tae Ashton: Just to recap our year for last year as I've done the last few quarters. We did have a good good year with acceptable results.
Tae Ashton: Our margin is improving we did say margin compression throughout the year like a lot of banks did that seem to have bottomed out. After Q2 Q2. During the year has been rebuilding we anticipate that to continue rebuilding in the year our asset quality remains strong we are see of one off stresses on credits, but today, we've been able to resolve.
Those are successfully by the restructuring and or moving them out of the bag. So at this point, we don't see anything systemic it's just been one off stresses on individual credits that will pop up as you would expect with a 500 basis point increase in rates, we've seen over last.
Tae Ashton: 24 months.
Tae Ashton: We do continue to see strong against the stable economy in Texas, which is encouraging for us as we see that going into the year. After 24, we planned of Arab fab.
Tae Ashton: Resolved that are very comparable to 'twenty three with exception of a building margin at this point asset quality again remains to be strong and we don't see anything that's what's concerning to us other than just individual credits periodically which at this point like I say, we've been able to kind of resolve GARP.
Tae Ashton: Satisfactorily.
Tae Ashton: And again with margin improving hopefully we're going to continue to see our earnings grow which is the only real metric that we're we're not satisfied with I do want to say our team our whole team daughter company I'm really proud of resolve certain because our company and our team produced for twenty-three wasn't here that had some challenges that are as everyone knows in our industry.
Tae Ashton: But our team is always did a great job of just executing serving our customers well and continuing to execute on our community Bank model.
Speaker Change: Before I turnover Shalane go to the Investor deck additional I want to recognize cap use our call. This will be his last earnings call. So anybody has a question per cabbie. He's on the call and he can certainly build those tabbies retiring as everyone knows at the end of this quarter is Daimler company 40 years and has been an invaluable asset to our comp.
Shalane: And as we've stated multiple pads, we really appreciate his contribution everything he's met for our company and so a page on this call and this will be his last one and then we want to recognize here, but I'm going to turn it over to Sheila to go through our investor deck that we can open it up to any questions anyone has joined.
Sheila: Alright, Thank you Ty and <unk> and yet has Lee you all have been very hard questions for copies last earnings call. He had and certainly some big shoes to fill in and ruggedness and I hope that we can continue to gain greater geographies than ever.
Sheila: Over the next 40 years now.
Thank you for the opening remarks tie and I will start off with the balance sheet.
Sheila: For the year total assets decreased about 166 million and total liabilities decreased about $175 million.
Sheila: And shrinking the balance sheet was a strategic decision of ours over the past year, because we've got core earnings and core earnings stream that allows us to have good profits without taking an added risk from the various economic and.
Sheila: Uncertainties and headwinds that existed in 2023, So you will see throughout these comments on the on the balance sheet that.
Sheila: Shrinking the balance sheet, which is strategic decision of ours.
Sheila: The year over year decrease in assets, Kansas City of lower cash of about $17 million lower security balances of about 98 million and a decrease in net loans and $53 million.
The asset decrease and where are you from the liability side of the balance sheet to pay down federal home loan bank advances by $150 million during the year.
Sheila: And a 48 million dollar reduction in total deposits.
Sheila: During the fourth quarter total assets decreased 46 million, which consisted as about a $41 million decrease in cash and fed funds sold.
Sheila: And in $24 million decrease in other assets that the decrease in other assets was it kind of just a one time deal we had a security mature on September 30th during the third quarter that we didnt receive the cash for Intel on the first day of the fourth quarter. So we had a receivable recorded a $20 million that was a result of that nature and security.
Sheila: The decrease was offset by an increase a small increase in net loans of $5 million during the fourth quarter and an increase in investment securities and $13 million.
Sheila: The decrease in cash is primarily used to pay down 35 million in advances during the quarter and to repay 25 million in brokered Cds that we did not renew.
Sheila: And total equity increased $8 2 million during the year as a result says 30 million in net income and was offset by dividends paid during the year of $10.7 million or 92 cents per share and by the repurchase of $11 2 million or nearly 435000 shares of Garen.
Sheila: The feedstock during 2023 in the fourth quarter, we purchased repurchased a small amount of 24800 shares of guarantee stock.
On the income statement side, the bank earned 5.9 million and net income during the fourth quarter and $30 million for the year, which equates to 51 cents per basic share in Q4.
Sheila: And $2 and 57.
<unk> per share for the year.
Sheila: Our return on average assets was 0.73% for the quarter compared to quite 70% in Q3 and 19% for the year.
Sheila: Our return on average equity was 793% for the quarter compared to 8.43% in Q3, and 10 point and 10% for the year.
Sheila: The decline in return on average equity is partially the result is improved a OCI during the quarter of $4 2 million.
Sheila: As the fair value of our available for sale Securities increased.
Sheila: As I mentioned, our net interest margin was 3.11% in the fourth quarter, which is an increase from 3.02% in the third quarter and we ended the year at 3.15%.
Sheila: The increase results from a 17 basis point improvement in our interest, earning asset yields which was offset by only an eight basis point increase in interest bearing liabilities. So our NIM was certainly helped during the quarter by noon repricing loans.
Sheila: We had lower federal home loan bank balances and slower repricing of interest bearing deposits during the quarter. We did have some shift which I'll talk about in a minute from noninterest bearing to interest bearing but that was the part about the increase in new we continue to have some Cds reprice into higher.
Sheila: Costing Cds.
Sheila: Noninterest income was fairly in line with prior quarter, but continues to be lower than prior year, mostly due to lower mortgage related gains on sales and fee income.
And then on the noninterest expense side initially brought this up in the first leg on noninterest expense was 888000 more in the fourth quarter, primarily due to higher salaries and employee benefits now the press release attributed this to increase in annual salaries.
Sheila: Salaries, which is correct, but we also recorded about 600000 in contractual retirement obligation accruals during the fourth quarter after retirement announcements in some of our long time bank executives. So we.
Sheila: Should have put that in the press release as well, but we also had a $600000.
Sheila: Retirement obligation accrual that we recorded in the fourth quarter.
Sheila: As we've mentioned on some of these calls in the past, we anticipate that noninterest expense will be about 2.5% of total assets, which is the threshold that we really striking.
Sheila: Try to stick with.
Sheila: So we're anticipating that total noninterest expense in 2024 will be similar to 2023 or about $83 million in total.
Sheila:
Sheila: On to our loan portfolio and credit quality.
Sheila: Gross loans increased slightly by $4 3 million in the fourth quarter that decreased during the year by $56 million, primarily in our C&I and construction and development buckets as we've been cautious about risk and reposition our balance sheet for economic improvements and grass hopefully sometime in <unk> and <unk>.
Sheila: 24 early 2025.
Sheila: We did originate about $89 6 million in new loans during the fourth quarter at an average rate of 861% So new loan yields remained strong.
Sheila: Our nonperforming assets continue to remain at historically low levels. They were at 0.18% of total assets during the quarter compared to 0.19% in the prior quarter and charge offs. Also remained low me. They were 222000 during the quarter and our net charge offs to average loan ratio was point out for.
Sheila: Percent.
Sheila: And CRE and office related loans continue to be a hot topic. However, we manage those concentrations very well we have a diverse loan portfolio and we don't have any significant concerns in those areas.
Sheila: And CRE represents about 40% of our total lending portfolio and of that 40% only about 4.6% is office loan related and those loans have an average loan balance of only $515000 in there.
Sheila: Quite a few smaller office type loans.
Sheila: Non accrual loans also remained low but then they did increase 2.7 million during the fourth quarter, primarily due to two loans one of which is in the process of being paid off.
Sheila: Now I believe this week and the other with a balance of 1.1 million that were continuing to work through those.
Sheila: Those loans are well collateralized and we really don't expect any significant losses at this time.
Sheila: Finally, Aristide sub standard loans decreased slightly during the fourth quarter and ended the year at $24.6 million.
Sheila: We did have one 3.8 million dollar loan that was rated substandard that paid off during the fourth quarter.
Sheila: And we're continuing to work with those remaining borrowers towards positive resolutions and again, we we don't expect any kind of significant losses on those loans at this time as we continue to work through that.
Sheila: We did not have a provision for credit losses in the fourth quarter or for the year and the qualitative factor adjustments that we previously made in our FIFA model back in the fourth quarter 'twenty, two and we've made some small adjustments since then and are still relevant and a decrease in our land portfolio has allowed us not to need additional <unk>.
Sheila: Revisions during 2023, our quarter end ACL coverage is 133% to the lungs.
Sheila: And then lastly, before we go into Q&A I'll talk about deposits liquidity and capital.
Sheila: And as I mentioned previously our total deposits decreased $25 million during the quarter and the decrease resulted largely from the maturity of the 25 million in brokered Cds that I mentioned that were not renewed but we also had some shift from noninterest bearing to interest bearing deposits noninterest bearing deposits decreased 50 point.
Sheila: $4 million that were offset by an increase in interest bearing deposits of $25 4 million.
Sheila: On noninterest bearing deposits represent 32.4% of total deposits at year end that we really continue to see do you expect to see that ratio move more towards our historical average of mid to high Twenty's as we move into 'twenty 'twenty four and beyond and we also have 25.
<unk> remaining of brokered Cds that are that are going to insurance February and at this time, we expect that will not reading that smoky those down so we won't have any brokered Cds leading after February.
Sheila: With respect to overall deposit risk guarantee has a very granular and historically stable core deposit base at year end, we had nearly 88000 deposit accounts with an average account balance of $30000.
Sheila: And also our uninsured deposits are relatively low excluding public funds and guarantee owned accounts uninsured deposits for 25 point is 7% of total deposits at quarter end.
Sheila: Our liquidity also remains good we ended the quarter with a liquidity ratio of 12.2% and use in cash flows from mature securities to pay down viral home loan bank advances like I mentioned, we ended the year at.
140 million, which is down from $290 million at the beginning of the year.
We have total contingent liquidity available of about 1.2 billion from federal home loan bank advances that will reserve banking correspondents and funds and revolving line.
Sheila:
Sheila: Capital is also strong we used some of our excess capital in the third quarter to continue to repurchase shares of guaranteed socgen odd intrinsic value for our shareholders, we repurchased 24800 shares during the quarter at an average price of $27.76 per share.
Sheila: And then with respect to the declines in the fair value of investment Securities and you know we mentioned this last quarter as well that even if we had to liquidate our entire portfolio, which we certainly don't expect to do at all.
Sheila: Our total equity to average assets ratio will remain pretty good eight 8%.
Speaker Change: That concludes our prepared remarks for today, so I'll turn it back over and in there now for some Q&A and hopefully some hard questions for Kathy.
Speaker Change: Thank you Shelly.
Shelly: Okay. Our first question today will be from Graham <expletive> with Piper Sandler.
Shelly: Graham can UN mute your line.
Shelly: Yes, sorry about that can you guys hear me sure. Good morning, Hi, Graham Good morning, guys.
Shelly: Okay. So I just wanted to start on.
Shelly: On deposits and the NIM.
Shelly: Surround deposit ship, so obviously that the cost of interest bearing deposits.
Road in terms of the increase a lot this quarter.
Shelly: I'm just wondering if you guys or did you have enough vision.
Shelly: Into the next couple of mindset.
Shelly: Confident that deposit costs here are close to topping out here I mean, I know you've got the.
Shelly: The 25 million a broker that's going to mature in February as well.
Shelly: Probably you know around 5% or more and then obviously seems like.
Shelly: Rates around the industry are also starting to fall as well. So you think the deposit costs and interest bearing in particular are about at their peak right now.
Speaker Change: Alright, great Uhm.
Speaker Change: It.
They're very close to their peak if they're not at their peak, yes, most of our Cds over the past year has been short term I think the longest that we did on specials were 13 months system of Dassault will start to you add renew at a little bit higher rates into 'twenty four but in terms of non time deposits and we have not.
Speaker Change: Increase those rates in a couple of months now and we don't anticipate continuing to do so so other than the shift from noninterest bearing into interest bearing.
Speaker Change: We don't really anticipate much change there.
Speaker Change: Okay.
Speaker Change: And then you guys had talked about keeping the NIM above 3%. When we you know we're feeling pressure to the downside now it looks like your margins should be starting to bounce a little bit higher is there any sort of a margin target you have going forward.
Speaker Change: As it pertains to a level you'd like to get above by I don't know at some point this year.
Speaker Change: Well, I mean, art's art internal targets for an 8%, which we likely won't hit this year. We are building them at least at this point.
Speaker Change: Two to three basis points a month.
Speaker Change: So you can kind of just run that four to seven known changes that should increase.
Speaker Change: Our Nam 25 to 30 basis points throughout the year from where we are now and where will be placed with that and certainly builds earnings right.
Speaker Change: Okay, Yeah that's helpful.
Speaker Change: And then I guess on loan growth it sounded like in the release that you were a little more optimistic around the <unk>.
Speaker Change: Potential for that returning at some point and your position when that does occur.
Speaker Change:
Speaker Change: Are you still expecting flattish balances. This year do you think that there is some possibility that.
Speaker Change: Gross rebounded a bit more in the back half of the year.
Speaker Change: We're still expecting Graham.
Speaker Change: Minimal loan growth this year I think our confidence in our ability to to participate in a charter economy comes to the strength of our balance sheet and our liquidity and Thats, what we plan to maintain and when once we say it's.
Speaker Change: It's time to kind of go on offense and began we're in a position to do that and I think that's the key right now is to be in that position lobby fine law the ban so.
Speaker Change: But right now as we said were contained in Tamil <unk>.
Speaker Change: Jack pretty flat loan growth for the year.
Speaker Change: Okay, and then I guess the last thing for me would be on <unk> on credit I know, there's some substandard that paid down this quarter, but I just wanted to know if theres any update on the $14 5 million dollar Austin credit and then also the sixth ship or about $7 million CRE credit that moved to substandard last quarter.
Speaker Change: Yeah.
Speaker Change: They often crack of that data, we have that posted for foreclosure and so assuming we get to that point and we'll have a management communist step animals start work in delinquent eight that if we don't sell homes passed we have a pretty large appraisal on a win.
Speaker Change: Pretty good equity position in it.
Speaker Change: So I don't know if we'll get to fork out or novel, we are teed up to that they ever credit sleeves glad to answer that one because I'm trying to wrap it up and that's the SBA 504 loan at ARIA.
Speaker Change: And under construction there have been some construction delays on that but we actually are in the first position behind that accompany.
Speaker Change: The company is financing the construction and <unk>.
Speaker Change: And believe that we've got pretty good LTV Marin and that will not have any losses from that once it's fully funded and resolved.
Speaker Change: We're getting that business opening so they're starting to move toward.
Speaker Change: Positive cash flow, but a vaccine.
Speaker Change: Blackstone said, we're very comfortable in our position in it but we did.
Speaker Change: We downgraded because of it because it's a startup and they don't have the cash flow today and are moving that direction, but where were felt like it was cut railcar cobian governance sub standard.
Speaker Change: Okay, Alright, that's helpful. All right, thanks, guys and congratulations Kathy.
Okay.
Speaker Change: Thanks Robert.
Thanks, Brian.
Speaker Change: Our next call will be from Brady Gailey with <unk>.
Brady Gailey: Hey, Thanks, good morning, guys.
Brady Gailey: More Brian good morning.
Brady Gailey: So I heard the guidance as far as loan growth to be pretty minimal or flat. This year, but I was wondering how you are thinking about.
Brady Gailey: Deposits.
Brady Gailey: And the outlook for 'twenty four there, although the loan deposit ratio is about 88%.
Brady Gailey: So are you comfortable with that and what's the outlook on deposit growth.
Brady Gailey: Our projected deposit growth is pretty flat and maybe one or two per seller, but it's pretty flat for the year Friday and that's kind of what we're projecting at this point, we proactively maintaining our core deposit base.
Brady Gailey: And this kind of a win right now with our competitive deposit market is and we've been able to do that and still have attractive, but not meal market, leading pricing and thats kind of our strategy for 'twenty four.
Brady Gailey: Alright.
Brady Gailey: And then one more on the margin if you look at the forward curve. It has a decent amount of rate cuts coming up over the next couple of years, but I was just wondering how you guys think about your sensitivity to.
Brady Gailey: Rate cuts going forward like if we get all these rate cuts.
Brady Gailey: Thank your margin will come under pressure or you have so much asset repricing that the NIM could still go higher even if we do get cuts.
Speaker Change: Shai anywhere I've over kind of your projections in Alco modeling.
Shai: Sure Yeah. So you know in our our budgets, we went a little bit conservative back in December and only budgeted into ranked cuts.
Shai: Styrene in 'twenty 'twenty four one in July and one in September.
Shai: And you know.
Shai: If this rate cuts are currently expected along with the repricing, which our model has our loan level and deposit level.
Shai: Instruments built in within it so it knows exactly when those are repricing, we'll still have positive NIM increases throughout 2020 for brainy at the bank level for sure.
Shai: So.
Shai: Yeah anywhere, we're predicting that even with Dennis will still be an N and M. I guess liability sensitive position.
Speaker Change: Alright, that's helpful.
Speaker Change: That you saw a modest amount of share repurchases in the fourth quarter I think if you look at the full year you bought back about three 5% of the company. How are you guys thinking about share buybacks and 24.
I mean, our current valuation.
Speaker Change: And Prasad or our shares is above kind of our our target for buybacks. So as long as we're above that we're probably not going to be in the market by embedding like black last year in prior years, if it gets below that and it's a priority for us and we'll be buying back with our excess capital. So.
Speaker Change: But we haven't bought any in several months because we've had some strength in our pricing.
Speaker Change: So all of that stays in place and we probably won't be as active.
Speaker Change: Okay, alright, great well, thanks for the color and Kathy good luck in retirement.
Speaker Change: Brady.
Speaker Change: No no.
Speaker Change: Sure.
No I guess, you I guess you couldn't hear me out.
Speaker Change: Our next question is from Matt Olney with Stephens.
Matt Olney: Hey, Thanks, good morning, guys.
Speaker Change: Good morning.
Matt Olney: I wanted to drill down on the loan yield commentary.
Matt Olney: It sounds like or I guess, it looks like in the fourth quarter that the loan yield.
Matt Olney: <unk> was really good and it sounds like you expect some additional loan resets to further benefit.
Matt Olney: On the margin 80, more just color on the amount of loan resets you expect during the course of 2024.
Speaker Change: Uh huh.
Speaker Change: So Matt our land portfolio turns over and.
No doubt well.
Well, it's got a duration of about a little over three years. So you know we expect it to continue turning over.
Speaker Change: That rate I don't know the exact dollar amount, but well continue to see some improvements in loan yields I think through.
Speaker Change: At least third quarter of 2024, yeah, it's about 100 million of corner, that's a must change all math, but that's ballpark on all loans that are maturing are better.
Speaker Change: Better repricing or not floating rate loans.
Speaker Change: Okay, that's helpful and I guess.
Speaker Change: The other side of that on the credit front I guess there was a mention in the press release about working with borrowers on loan recess I get I guess, implying that some borrowers may need some.
Speaker Change: Systems with Alondra assess any any more color you can give us on on <unk>.
Suggest how many borrowers youre seeing that need some assistance and when that's the case what type of assistance to typically focus on.
Speaker Change: Well, we focus on I mean kind of the position of the credit you know the strength of the credit the borrowers and you know what cap for the issues that are they're facing image. It was just a cash flow issue and we addressed kind of address that cash flow side of it.
Speaker Change: But I mean, we're not seeing any buying systemic in the portfolio, where our San Juan All credit says like I said in my opening comments as you would expect I think every bank is going to be dealing with that and credits acre of crabs repricing from them from 4% to 8% that's a material change in obviously the Z O.
Speaker Change: Hey.
Speaker Change: Debt service of that credit so.
Speaker Change: We are seeing one of stresses that we're that we're addressing either for restructuring additional collateral.
Speaker Change: Additional guarantors or moving the credit out of bank EBITDA and they have better opportunities outside of the banks to refinance the credit and we're working with them to get that done and we're just address them one at a time as we see them.
Speaker Change: And.
Speaker Change: There's probably five or six credits that were dealing with at any given time in and getting them resolved to our satisfaction and move it. All main thing is we're keeping the next clearer as far as you know a problem assets are foreclosed properties are and just keep our balance sheet strong. So if there's additional credit to come in and we have the capacity to deal with those.
Speaker Change: And do it on our timeline.
Okay. That's helpful and then I guess so.
Speaker Change: Back on that same topic.
Speaker Change: When you provide assistance and how often does that fall under the category of a I guess a loan modification at that stays within the bank.
Speaker Change: There are seven I'll say that you're that you are forgiving.
Speaker Change: Well, there's not I mean, there might be a modification, but theres not forgiving wagons that a debt forgiveness of debt. This point, but there may be a restructure them over again and getting additional collateral additional guarantors are just restructuring of credit, where we where the credit work since a passing grade credit in today's environment and that's.
Speaker Change: Anything that has any feel a variety of restructurings that we may do but it is basically to get it to that point.
Speaker Change: And Matt to elaborate on that just a little bit you know we have a process in place where if there are any material changes to terms and theres a material change form that needs to be filled out and that gets captured in ours. Our on system. So that we can go through and and.
Matt Olney: They evaluate whether the four criteria that are required to be disclosed around modifications are met on so if we do have those you'll see those in our in our.
Matt Olney: Loan modification disclosures.
Matt Olney: Okay.
Speaker Change: Okay, Yes.
Matt Olney: Apple.
Matt Olney: Okay. That's all for me appreciate the color and.
Speaker Change: Kathy Congrats on the retirement and best wishes in the future. Thank you Matt.
Speaker Change: Thanks Ma'am.
Speaker Change: Next question will be from Tim Mitchell with Raymond James.
Hey, Jim.
Tim Mitchell: Hey, good morning, everyone third tenant for Mike Thanks for taking my questions.
Tim Mitchell: I guess just to start to be income took a small step back order you guys got it called out cards credit card income and mortgage I was just kind of curious what your outlook is for that for fee income through 'twenty four and you are baking in any sort of kind of recovery in mortgage or anywhere else on that.
Tim Mitchell: In that segment.
Tim Mitchell: Tim This is Todd we're really not we're we're kind of projecting flat from twenty-three during 'twenty four if there's opportunities to expand certainly mortgage income we will but obviously that's market dependent so just given a lack of lack of clarity on that we projected pretty flat.
Todd: Our fee income for the year.
Todd: Okay, and then just kind of a seven loan and deposit having a competitive dynamics in your markets have you guys been.
Todd: <unk>.
Todd: What are you what trends are you Sir now and then on the loan side like what are you seeing on from demand are there any markets more kind of verticals that have a trends worth calling out.
Speaker Change: No not really Tam I think everything is.
Speaker Change: Or is it pretty similar to two I could spend the last few quarters I mean, there's obviously economic activity going on and again, Texas is continuing to be a pretty strong and stable market, but it is definitely muted from prior the prior couple of years, just given the current rate environment and so.
Speaker Change: Acts are getting put on hold or they're getting yogurt theyre getting restructured even on the front end with more equity just to make them work in today's rate environment and banks are being very prudent in how they're looking at new opportunities as you would expect in the current environment and again.
Speaker Change: Strategy from our standpoint is to maintain a strong balance sheet, where we're positioned where we.
Speaker Change: We can take advantage of that you know an increase in uptick in economic activity as it as it develops.
Speaker Change: Awesome.
Speaker Change: The questions great. Thanks for thanks for the time guys.
Speaker Change: Thanks, Jim.
Speaker Change: Thank you for your questions I would like to remind everyone. The recording for this call will be available by one P. M. Today on our Investor Relations page at G. M T. One dot com.
Speaker Change: Thank you for attending and this concludes our call.
Good day.
Speaker Change: Goodbye.