Guaranty Bancshares Inc (GNTY) 2022 Q1 法說會逐字稿

Good morning. Welcome to the guaranty Bancshares' First Quarter 2022 earnings. My name is non-branch, and I will be your operator for today's call. A reminder that this call is being read. After the prepared remarks, there will be a Q&A session. Our host for today's call will be time absent Chairman and Chief Executive Officer of the Company, Cathy Peng, Senior Executive Vice President and Chief Financial Officer, Schilling Jacobson, Executive Vice President and Chief Risk Officer. To begin our call.

I will now turn it over to our CYO. Thai Aston.

Thank you, Nahla. Good morning, everyone. Welcome Call for the First Quarter Earnings Call for Ganite Bancshares. As we noted in our press release this morning, the company had a very good quarter with very strong growth and good earnings for our company. As we mentioned, we did unwind all COVID related reserves, and I go through that a little bit. We did offset most of that our negative or that release with additional reserves on some of the macro factors we're seeing that they're in the economy and everything going on right now. And we'll discuss that further to I'm going to turn it over to Kathy Lane to go through the numbers. And then when we're done, we'll do Q&A and cover anything you'd like to cover. Kevin?

Thank you, Dan, and thanks for joining us, everyone. As David said, we had a had a good quarter starting off 2022. The latter key components on our balance sheet saw nice increases. Our total assets were up $104 million for the quarter, now stand at just under $3.2 billion. I think obviously, the biggest component of that component of that is loans. They closed that a little over $2 billion. And looking at the growth for the quarter, ex PPP and warehouse lending, we had a nice increase of $157 million. That's 8.6% of those loans. When you when you take out PPP and warehouse, the other big changes that you saw in the in the US earnings release was a was a 50 plus percent increase in our bond portfolio, putting some of that excess liquidity or liquidity to work, Shane, to talk a little bit about that in a minute and we can answer any questions you might have on that later on.

Also, really the biggest driver of that growth in assets was created by our growth in deposits. Deposits grew again nicely this quarter, $127 million for the quarter, not $2.8 billion. We continue to add core deposits and open new checking accounts just like we did in 2021, a quarter in our DDA accounts and our non-interest bearing accounts were 38% of our total deposits. So a good portion of those being in the core DDA checking type accounts.

If you noticed, our shareholders' equity decreased during the quarter little unusual. It decreased about $10.3 million as driven by a negative market value swing of just that just right at $17 million that went through our OC. app, our other comprehensive income category and our capital account with that's related to what is now a unrealized loss in our securities portfolio. At the beginning of the quarter, we had a $6 million unrealized gain in that portfolio and that that move to the at the end of the quarter fell to a $11 million unrealized loss in the bond portfolio. So that's at $17 million swing, which is about a $1.40 or 45 of tangible book value. We also bought back shares during the quarter at that level or a lower 56,000 shares, that spending a little over $2 million or right at $2 million. And we paid an increased our cash dividend of 22¢ for the quarter. That's up from $20 in Q4 2021. Of course, the positive to our capital count was Arrow. That earnings power was talking to talking about for the quarter, we reported $89 per share or 88¢ fully diluted. That's related to the $10.7 million net earnings that we reported in Q1. And those those earnings are up $1.6 million from the linked quarter. The biggest drivers of those extraordinary in comparing quarter to quarter would be the relief, the provision I alluded to above 1.25 million and then the gain on some swap transactions that we terminated a swap that train of thought metal and a little bit and that the non-interest income 685 barrels. So we'll talk about the M and the process of that.

STEPHEN, looking at our core earnings and we define that in earnings releases pretax, pre-provision and pre PPPI. It was the highest it's been in the last six quarters and our Q1 core earnings 10.9%.

So looking at our on the income side, our NIM. stayed pretty steady or stated NAM was 3.37%. That's down two basis points looking at it ex PPP activity, our name was 3.30%, down three basis points. So really really pretty steady. Our loan yields slipped a little bit, still strong at four at 4.59% ex-PPP, but that's down seven basis points. We did have, as I said, booked quite a few loans. So looking at our yield on new loans originated, they stayed steady for the for the quarter, they were 4.22%, and that's compared to of 4.24% in the linked quarter. Then our cost of deposits remained steady for this quarter. They're 18 basis points and they are 18 basis points in Q4 of last year. So they have they have remained steady looking at our noninterest income category is showing up 7% against claims. Don't give us the details on the main driver of that being the termination of the swaps. But I will say, if you looked at the components of that, our mortgage volume was down as expected, a little more than what we thought I had projected last time, maybe 12, 15%. It was down 20% linked quarter and actually down 35% from a year ago when mortgage activity was really at its highest.

I'll speak to a little bit about that.

Just second and looking at our expenses, try slightly above the 103,000 for the quarter. The main driver continues to be employee compensation and benefits. Three quick points that bank to that regard. The first is we did onboard five new production officers in Q1. Three of those are in the Central Texas region, one in the DFW region and in one SBA.

And then the second bullet point I'd say is we did have a turnover in leadership in our mortgage division and there's going to be some added staff there, most likely in Q2 related to that as we develop and a more defined strategic plan in mortgage and that that staff will probably will should include both production and back office. So that that's a change that we're looking forward to going forward.

And then I guess the third bullet bullet point, I think we addressed this last quarter too. We still have about four to five key production positions open that are currently not field but likely to be field sometime in 2022. We'll see and those are production of positions in Houston, Central Texas and DFW mainly. So that's a quick recap of the balance sheet actually now turn it over to you.

Thanks, Cabby. And next I'll cover some of the highlights of our loan portfolio, credit quality and the allowance for credit losses. And luckily, our economy here in Texas continues to be outstanding. And hopefully most of you have received our annual report by now, which we highlight several really interesting statistics about the growth in our state and economy. Last year. Texas was number one on the U-Haul one-way growth index. So we've got lots of people coming to our state. And I think as a result of that, partially as a result of that loan demand has been really strong as well.

As Kathy mentioned a moment ago, excluding PPP and warehouse loans are our loans increased about $157 million or 8.6% during the quarter. And our loan yields, excluding PPP, did slip slightly during the quarter to 4.59% compared to 4.66% in the previous quarter. However, we hope that downward trend will soon reverse itself as rates increase as some economists and others predict that they will. So we included some information about rate sensitivity here in the presentation. And in our release some we have about $1.3 billion or 65% of our loan portfolio that have variable rate. And so if rates increase as expected which we estimated at 50 basis points in both May and June and 25 basis points in each of the remaining Fed meetings during 2022.

Then 346 million or 27% of those variable rate loans will reprice by year end. So the loans that aren't repricing are really because at their next repricing date being after December 31st, 2021 and not because of loan rate floors. So we as of March 31st, 2022, we have some $685 million of loans that are at their floor rate. But if rates increase, 75 basis points to 83% of those would be above their loan to rate and at 150 basis point increase, 97% would be above their floor floor rate. So again, the loans that are not going to be repricing by year end or because our next repricing date is in 2023 or 2024. And then we also have quite some numbers and basically said, assuming no payoffs or modifications under that scenario described repricing would provide us with an estimated additional loan interest income of about $2.8 million between now and year-end. And we also have a few bullets illustrating recent nonperforming asset and charge-off trends, which continue to remain wow and for the allowance for credit losses. As Kathy mentioned, we recorded a reverse provision of $1.25 million during the quarter. We've seen significant improvements in COVID related health statistics and economic impacts of COVID during the first quarter in our communities. So as a result of that, we fully unwound the remaining COVID-specific key factor in our allowance methodology. However, the effect of unwinding that COVID-specific key factor was really offset quite a bit by growth in our loan portfolio. And then we also did make some adjustments to some of our standard key factors for uncertainties related to inflation, uncertainties related to the impact of increases in interest rates on our borrowers and then overall geopolitical concerns such as the world in Ukraine and Russia.

As of quarter end, our allowance coverage, excluding PPP loans, was 1.46%, which is down from 1.64% at year end.

On to the next slide, we talk a bit about PTP. updates to asset line, asset liability management and other items and nearly all of our PPP. one loans have been forgiven or are paying as agreed and all of the related deferred income has been recognized. We made really good progress on PPP. two forgiveness during the quarter with only about $19.1 million remaining on our books and unrecognized deferred fees of about $477,000. And at that time, Kathy mentioned we did terminate some interest rate swaps that were used to hedge three month Federal Home Loan Bank advances, and we paid off the advances that were $40 million. And then we recognize the $685,000 net gain on termination of the swaps, which is included in other noninterest income on the income statement. And we also deployed quite a bit of excess cash to purchase securities, including about $270 million in short-term treasuries that mature from August to 22 through March of 24. And then we purchased about $30 million of agency mortgage-backed securities and all of the purchases in 2022 are classified as held to maturity. And if we continue to buy more, it will be classified as held to maturity as well in order to take some of that volatility out of the ASCI. and tangible book value, hopefully some. And then we we'll continue to maintain a conservative stance on our cost of total deposits and raising rates there given our excess liquidity position. And as of quarter end, 38, 1.1% of our total deposits are non-interest-bearing. So that helps as well.

And then finally, back on March fourth, we issued $35 million in subordinated notes with a fixed rate of 3.625%. So it's fixed for five years and then converts to floating at rate equal to the three-month term so far, plus a spread of 192 basis points until it matures in April of 2032. We've already been able to put quite a bit of that money to work through the share repurchases that Kathy mentioned earlier.

So that concludes our presentation today will now turn it over to you all for questions.

Thank you. Showing it is now have our Q&A part of our call. If you have any questions, you can just raise your hand button at the bottom of your screen. If you're participating by telephone star nine will raise your hand. Star six will unmute your line.

Our first call today will be from Brady Gailey with KBW.

Thanks good morning, guys. Anymore, Erez, so you have several moving parts within spread income with the termination and also with this bond book growth?

Yes, I think you ended the quarter at about $800 million in bonds, but it seems like you have a little more cash that you could put to use there. How should we think about the bond balances going forward.

So Brian is tasked. So we this quarter and we purchased, but I think bonds and really they're short treasuries. So we started kind of built the ladder from six months to two years just because of everything that's going on the yield. And that leaves us with about 150, 60 million or so in Fed funds. That's kind of a pay balance for us. So I wouldn't we're not going to probably be moving a lot of additional funds into that program, but we certainly could and we just we're taking advantage of the yield curve, the shift in the yield curve and felt like it made sense and still kept us very short as far as those bonds.

Okay. That's helpful. And then on the expense side, it sounds like you're making some changes in mortgage and maybe growing of that group more now. How should that impact expense as I know before we've kind of talked about a bit 76 to $77 million expense run rate. Will that be higher given the changes you're making in mortgage?

We have a little bit of Brady to this CapEx, I would say our run rate would be in the 77, the maybe $78 million range going forward for this year.

Okay. And then I think mortgage fees dipped a little more than you thought. And any update on how you think your mortgage and just overall fee income will trend for the rest of the year. I think where we're we this new team, we're going to we're going to think of different ways to to be more productive and get more production off of our staff, but I think that that will increase going forward.

Well, I must say that I think it will not continue to decrease, I think will be flat for Q2. And then we'll be in Q4, and we'll see how that can how we can can grow that.

All right. Great. Thanks. That's great.

Our next call will be from Michael Rose with Raymond James, and good morning, everyone. How are you? And I will take a more macro.

Okay. So really strong loan growth this quarter, and you mentioned that the pipelines still remain pretty strong previously, you guys had talked about kind of a high single digit growth rate. You're well above that. If you annualize this quarter's growth ex warehouse, ex PPP, any sort of way we should think about it is are you seeing any pull forward of growth, some rebuilding of inventories? And then conversely, you have any caution as we potentially move into the back half of the year, just given obviously some of the key factors for us went up for environmental concerns? Thanks.

So, Michael, there's like I mentioned, I mean, there's a lot of positive things going on in our state, and we're certainly participating in that. And I would guide on an annualized basis low to mid double digits growth. But like I said, in my press release. I mean, with all the things going on there, positive, we still can we have growing concerns from a macro standpoint of the things that are going on obviously, outside of our control with inflation, rising rates and there's some geopolitical environment things going on around the world. So all those things collectively create some real concerns. And so that's why we added additional reserves. We like I mentioned, we took COVID out reserve models that we dialed in some additional concerns we have from a macro standpoint. So we're going to we're going to continue to, you know, a bit cautious as we look at opportunities to grow the Company. And as we we're certainly underwriting with that caution. And but there's just a lot of very positive things happened in our state. But those things can be those things could be sidelined as well with that macro events.

Okay. Maybe as a follow-up to that. So if I look at kind of post day one CECL, your reserve was around the one 21.2% range. You guys are a little bit above that obviously negative provision. This is do you still feel like there's room for to bring that down over coming quarters, just given how strong the are the asset quality metrics, would you expect to be somewhat cautious just given that the broader economic concerns?

It's going to be more of the latter, Michael, Lou. I mean, we're going to we're still going to we're obviously, we have very strong asset quality at that, just the factors that we've put in place and just our overall thoughts things I mentioned we're going to maintain pretty conservative reserves for the foreseeable future.

Okay. And then maybe finally for me, you guys repurchased a little bit of stock this quarter, but I think your program expired at the middle of last month. Is there any plans to potentially put another one into place just given the performance of just bank stocks in general, yours included and be a little bit more opportunistic here just any sort of thoughts on buyback would be great. Thanks.

Yes, Michael, we've got we have that already teed up and that will be renewed this week.

Okay. Thanks for taking my questions and thanks, Mike.

Our next call is for Matt Olney with Stephens.

Yes, hey, thanks. Morning, everybody. Matt, I wanted to circle back on the loan growth commentary. It sounds like the guidance is a little bit more optimistic now than it was previously. I think last time we talked in January, you talked about the concern of loan paydowns are going to remain elevated and possibly accelerate. I'm curious what you saw on the paydown front in 1Q and what the expectations are now for the full year with respect to the paydowns and what that updated guidance now assumes?

So, Matt, we had paydowns definitely slowed in Q1, and we know we anticipate that kind of maintaining its current pace of that being said, the things I've been talking about, really it's hard to gauge that, but them paydowns slow down. And some of the things we've had in pipeline in the new year kind of came to fruition and we're able to close in Q1. So I still I'm confident that getting higher based on those two factors. And just overall, the strength we're seeing in our footprint. But again, just trying not to have we get ahead of ourselves with everything else going on.

Okay. Yes, thank you for that tour and down the deposit growth, some really good numbers in 1Q. Just remind us of the seasonal nature of the bank's deposit base, just trying to appreciate what the expectation should be for the rest of the year with respect to deposit growth, although I don't think we'll have that type of growth going forward, Matt. But normally in Q1, we see pretty good growth in deposits, public funds, deposits and that did not happen this year. So with none of that growth for this quarter was really related to deposit fund money. So really when you separate that out, typically other fund money will decrease in QQ. three and Q4, an increase in QQ. one specifically. I think that will that will pan out in the back that will have a little bit of decrease there. But as we continue to open up new accounts and new markets, and we really emphasize the total relationship as we're even our bond and loan customers do to add add checking accounts and deposit accounts with, I think that that pace will slow down, but I don't see a big drop-off.

Okay. Thanks for that, Kathy. And then just last question for me. I wanted to dig in a little bit more on the loan floors and the expectations of repricing some of those loans. And I was a little surprised that the disclosure that 27% of the variable rate loans would reprice higher under that rate scenario that you guys disclose on showing. And I think you were saying this is more of a timing issue because it sounds like the loans are going to be above the floors for a while, but contractually, they can still be several months before you receive the benefits of higher rates. Just a more color you can give me on the timing aspect of those loans. And so yes, it definitely is the floors really aren't going to play a significant factor because we're estimating that they're raising the rates. So quickly said, yes, we have quite a few loans that reprice every 12 months or every 24 months or maybe they're fixed for a period of time and then they move to variable. So we're including those within the 100 the $1.3 billion of variable-rate loans that we mentioned. So so it really is just a timing issue. I don't have the numbers. I've got some people pulling out a report that can tell me exactly when the remainder will reprice, but it will be the majority of that will reprice in 2023 and with some going over into 2024 because most of our variable rate loans that reprice over a period of time will be 12 month it.

Okay. Thanks, Dave. Appreciate your help.

Thanks.

Matt will be from Brad mill with Piper Sandler.

Hey, good morning, guys, and Brad Grant, I just wanted to maybe delve into the margin a little bit more. Can you guys give me a sense of kind of the rates on the bonds that you purchased during the quarter, and we obviously you're going to have a benefit from a mix change here. Just kind of how you're thinking about them capping sort of rate hikes, Syed?

Well, the bonds we purchased during the quarter at this time showing both mentioned were pretty short term, a lot of taken taken advantage of that shift in the yield curve allowed the treasury notes that we bought, we're again, six months put the two year. So those rates weren't very high. Just more more a fact of putting our excess liquidity to work quicker, and that will work now until until they mature, we did buy a few mortgage backs, not not much really, but that yield that yield was somewhere in the in the 3% now. So that's a pretty good increase from what they were about a year ago and at about 1%. So again, going back to what path and I think will the bond portfolio growth will probably will slow down quite a bit as far as the loan growth, but putting those loans to work quicker or putting those loans on the books in Q1 got that them margin work and a little quicker. So I think we continue to feel a little bit of a shift there, a decrease in the loan yield, but that will start to start going up here in Q2 and the second half of the year for sure. So adults that don't see much slippage at all in our app margin. I think we can we can really play play defensive on on our liability side still. And we'll see an increase in cost of funds as rates go up, no doubt, but not to the pace that the that they change change at Prem.

And just to follow up on that point, and Kathy, have you guys I know this is tough to predict, but if we do get that rate scenario that you guys laid out in the deck, that would result in your loan portfolio repricing, as you expect what do you think that would do to the right side of the balance sheet? And what does your crystal ball say, sort of on deposit betas, you know, at various levels of rates going up?

Well, as I said, we're going to we're going to have to increase rates on deposits. There's no doubt we're going to do that to be competitive and just not going to keep up with the same pace. But I guess if it gets if you will, if it's 20% forever.

Yes, at 20% for every 50 basis point increase or something like that and or any increase in prime or an increase in Fed funds would be are increasing deposits.

Okay. And then finally on just maybe a question for Todd, the five new producers that you brought out did with a contributor at all during the first quarter. And then to the extent they were they were what would be your expectation on what those folks can kind of I bring it. Is that is that a big part of sort of your increased loan guidance as you think about 2022?

No, Brad, it really I mean, yes, the producers we onboard the last 12 months were part of that growth. But honestly, it was really across our footprint, all four regions that ran really had had them had strong a strong quarter. So our expectations, yes, new producers will be part of that growth the rest of this year, but are existing producers in our existing footprint, the equation as well.

Okay, great. Thank you, guys.

Sure. Thanks, Brett. This concludes our Q&A session for our call. I would like to remind everyone that recording will be available at GNTY. dot com in our Investor Relations page at 1 P.M. today. Thank you for attending. Tim.