Guaranty Bancshares, Inc. Reports Second Quarter 2021 Financial Results
July 19, 2021 at 07:00 AM EDT
Guaranty Bancshares, Inc. (NASDAQ: GNTY), the parent company of Guaranty Bank & Trust, N.A., today reported financial results for the fiscal quarter ended June 30, 2021. The Company's net income available to common shareholders was $10.4 million, or $0.87 per basic share, for the quarter ended June 30, 2021, compared to $11.0 million, or $0.91 per basic share, for the quarter ended March 31, 2021 and $1.1 million, or $0.09 per basic share, for the quarter ended June 30, 2020. Return on average assets and average equity for the second quarter of 2021 were 1.42% and 14.64%, respectively, compared to 1.60% and 16.01%, respectively, for the first quarter of 2021 and 0.16% and 1.67%, respectively, for the second quarter of 2020. The decrease in earnings during the second quarter of 2021, compared to the first quarter of 2021, was primarily due to lower origination fee income recognized during the quarter for the Paycheck Protection Program - round one (“PPP1”) and round two (“PPP2”) loans, which was partially offset by a reverse provision for credit losses of $1.0 million. Our core earnings†, excluding provisions for credit losses, income taxes and PPP1/PPP2 net origination income, as well as our core net interest margin, adjusted to exclude the effects of PPP1/PPP2 loans, are described further in tables below.
"We continue to be extremely pleased with our financial results for the second quarter and first half of 2021. Although not fully recovered, the Texas economy is rebounding very strongly from COVID effects and we've begun to refill our loan pipeline with increased demand across all loan types and regions. Our borrowers have shown strong resilience during this rebound, with many businesses having record years so far during 2021. Our non-performing assets as a percentage of total assets are very low at only 0.13%. Almost all of our borrowers who received a COVID-related deferral are back on regular payment schedules with only a handful of credits remaining in an interest-only deferral period that will end in third quarter of 2021 as they also return to contractual payment schedules. As our second quarter results indicate, like all banks we have experienced some headwinds in our net interest margin and are seeing elevated loan pay downs, but we are confident in our ability to defend our net interest margin in this unprecedented rate environment and are encouraged with the size and strength of our loan pipeline as we enter the second half of 2021," commented Ty Abston, the Company's Chairman and Chief Executive Officer.
RESULTS OF OPERATIONS
Participation in the PPP1 and PPP2 program, as well as large provisions for credit losses in the second quarter of 2020 resulting from effects of COVID-19 have created temporary extraordinary results in the calculation of net earnings and related performance ratios. With some continued uncertainty as a result of COVID-19 and other economic factors, the following table illustrates net earnings and net core earnings results, which are pre-tax, pre-provision and pre-extraordinary PPP1/PPP2 income, as well as performance ratios for the prior five quarters:
Net interest income, before the provision for credit losses, in the second quarter of 2021 and 2020 was $23.5 million and $23.2 million, respectively, an increase of $295,000, or 1.3%. The increase was primarily due to a decrease in interest expense of $1.6 million, or 46.8%, compared to a decrease in interest income of only $1.3 million, or 4.9%. The decrease in interest expense is primarily attributable to lower deposit-related interest expense of $1.5 million, or 50.9%, compared to the same quarter of the prior year.
Net interest margin, on a taxable equivalent basis, for the second quarter of 2021 and 2020 was 3.44% and 3.78%, respectively. Loan yield decreased from 5.15% for the second quarter of 2020 to 4.79% for the second quarter of 2021, a change of 36 basis points, while the cost of interest-bearing deposits decreased from 0.83% to 0.37% during the same period, a change of 46 basis points. The decrease in loan yield was primarily due to the repricing of variable rate loans to lower interest rates during the period and lower recognized PPP origination fee income. Loan yield, excluding the effect of PPP loans, was 4.82% in the second quarter of 2021, compared to 5.04% in the same quarter of the prior year, a decrease of 22 basis points. The average yield on interest-bearing deposits in other banks, which consists of fed funds sold, also declined from 0.12% in the second quarter of 2020 to 0.06% in the current quarter while the average balance more than doubled in the current quarter. The decrease in average deposit rate was primarily due to continued reductions in interest rates for non-maturing deposits as market conditions have allowed.
Net interest income in the first quarter of 2021 was $24.5 million, resulting in a decrease of $1.0 million, or 4.1%, in the current quarter. The decrease resulted primarily from $3.2 million of PPP origination income recognized in the first quarter and only $1.4 million of PPP origination income in the current quarter.
Net interest margin, on a taxable equivalent basis, decreased from 3.85% for the first quarter of 2021 to 3.44% for the second quarter of 2021. Loan yield decreased from 5.20% for the first quarter of 2021 to 4.79% for the second quarter of 2021, a change of 41 basis points. Loan yield, excluding the effect of PPP loans, increased three basis points from 4.79% in the first quarter of 2021. The average yield on interest-bearing deposits in other banks also declined nine basis points from 0.15% in the first quarter of 2021 while the average balance increased by $91.7 million, or 27.4%, in the current quarter. The cost of interest-bearing deposits decreased from 0.42% to 0.37% during the same period, a change of five basis points. The decrease was due primarily to the maturity of higher-rate CDs during the second quarter of 2021, as well as continued reductions in interest rates for non-maturing deposits as market conditions have allowed.
The Bank’s continued participation in the PPP program has created temporary extraordinary results in the calculation of net interest margin. To illustrate core net interest margin, the table below excludes PPP1 and PPP2 loans and their associated fees and costs for the three and six months ended June 30, 2021:
During the year ended December 31, 2020, a total allowance for credit losses provision of $13.2 million was recorded primarily to account for the estimated impact of COVID-19 on credit quality and resulted largely from changes to individual loan risk ratings, as well as COVID-specific qualitative factors primarily derived from changes in national GDP, Texas unemployment rates and national industry related CRE trends, all of which were impacted by the effects of COVID-19. There was no provision for credit losses recorded during the first quarter of 2021. A reverse provision of $1.0 million was recorded in the second quarter of 2021 in order to begin to capture the improvements that have occurred to macro-economic factors evaluated at the onset of the pandemic as part of the aforementioned COVID-specific Q-factors, as well as risk rating upgrades for specific loans, which impact the reserve calculations within our model. Although management is cautiously optimistic about improving vaccination and economic trends, it is possible that the economic effects of the pandemic could continue beyond 2021, although we expect the credit impact of the pandemic to be largely understood and accounted for by the end of 2021.
Noninterest income increased $983,000, or 19.7%, in the second quarter of 2021, to $6.0 million, compared to $5.0 million for the second quarter of 2020. The increase from the same quarter in 2020 was due primarily to an increase in merchant and debit card fees of $588,000, or 44.1%, and an increase in service charges of $284,000, or 49.7%. These increases were partially offset by a decrease in the gain on sale of loans of $264,000, or 17.5%, from the same quarter of the prior year.
Noninterest expense increased $2.5 million, or 16.6%, in the second quarter of 2021 to $17.7 million, compared to the second quarter of 2020. The increase in noninterest expense in the second quarter of 2021 was partially driven by an increase in employee compensation and benefits expense of $2.1 million, or 26.3%, to $10.2 million, from the same quarter of the prior year, resulting primarily from a reduction in bonus accrual during the second quarter of 2020 and from the effects of reduced deferred origination costs associated with fewer PPP loan originations than the prior year quarter. Other increases in non-interest expense resulted from an increase in occupancy expenses of $283,000, or 11.1%, from the same quarter of the prior year and an increase in legal and professional fees of $158,000, or 26.8%. Additionally, ATM and debit card expense increased $137,000, or 28.6%, resulting from increased usage of ATM and debit cards during the period. These increases were partially offset by a decrease in charitable contributions of $156,000 in the second quarter of 2021 compared to the same quarter of the prior year.
Noninterest income in the second quarter of 2021 decreased by $149,000, or 2.4%, from $6.1 million in the first quarter of 2021 due primarily to a decrease in gains on sales of loans of $154,000, or 11.0%. Merchant and debit card fees increased $416,000, or 27.6%, from the prior quarter, but was offset by a decrease in other noninterest income of $413,000, or 39.2%, caused by a first quarter gain of $277,000 on bank-owned life insurance proceeds resulting from the death of a former bank officer, a $95,000 decrease in the gain on sales of real estate and a $65,000 decrease in the Small Business Administration ("SBA") servicing asset fair value that occurred during the second quarter of 2021.
Noninterest expense increased $391,000, or 2.3%, in the second quarter of 2021, from $17.3 million in the quarter ended March 31, 2021. The increase was primarily due to a $261,000, or 2.6%, increase in employee compensation and benefits, along with a $146,000, or 5.4%, increase in occupancy expenses and a $143,000, or 23.7%, increase in legal and professional fees during the second quarter of 2021 compared to the previous quarter. These increases were partially offset by a $117,000, or 25.7%, decrease in advertising and promotion expense during the quarter.
The company’s efficiency ratio in the second quarter of 2021 was 60.12%, compared to 56.56% in the prior quarter and 53.90% in the same quarter last year. Adjusted to remove the effects of PPP-related transactions, the company’s efficiency ratio† for the second quarter of 2021 was 64.66%, was 65.34% for the first quarter of 2021 and was 62.44% for the second quarter of 2020.
Consolidated assets for the company totaled $2.93 billion at June 30, 2021, compared to $2.89 billion at March 31, 2021 and $2.67 billion at June 30, 2020.
Gross loans decreased 1.2%, or $22.2 million, to $1.89 billion at June 30, 2021, compared to loans of $1.91 billion at March 31, 2021. The decrease in gross loans from the first to the second quarter of 2021 is primarily due to the continued payoff and forgiveness of PPP loan balances, a decrease of $30.8 million from the $158.2 million of PPP loans outstanding at March 31, 2021 . Excluding the decrease in the balance of PPP loans, gross loans increased by 0.5%, or $8.6 million, from the prior quarter.
Gross loans decreased 3.4%, or $67.3 million, from $1.96 billion at June 30, 2020. The decrease in gross loans during the second quarter of 2021 compared to the second quarter of 2020 included a decrease in outstanding PPP loan balances from $208.8 million to 1,908 borrowers at June 30, 2020 to $127.4 million to 1,674 borrowers at June 30, 2021. Excluding the outstanding PPP balances as of June 30, 2021 and 2020, gross loans increased $14.1 million, or 0.8%, from the same quarter of the prior year.
Total deposits increased by 2.3%, or $57.8 million, to $2.53 billion at June 30, 2021, compared to $2.48 billion at March 31, 2021. Deposits increased 13.0%, or $291.0 million, from $2.24 billion at June 30, 2020. Changes in deposits during these periods were heavily impacted by the deposit of PPP loan proceeds into demand accounts at the Bank, as well as apparent changes in depositor spending habits in these periods resulting from economic and other uncertainties due to COVID-19.
Shareholders' equity totaled $287.7 million as of June 30, 2021, compared to $280.1 million at March 31, 2021 and $258.9 million at June 30, 2020. The increase from the previous quarter resulted primarily from net income of $10.4 million, offset by the payment of dividends of $2.4 million and a decrease in other comprehensive income of $663,000 during the second quarter of 2021.
Nonperforming assets as a percentage of total assets were 0.13% at June 30, 2021 and March 31, 2021, compared to 0.56% at June 30, 2020. The Bank’s nonperforming assets consist primarily of nonaccrual loans. During 2020, nonperforming assets included three SBA 7(a), partially guaranteed (75%) loans that were acquired in the June 2018 acquisition of Westbound Bank, with combined book balances of $8.7 million as of June 30, 2020. During the first quarter of 2021, one of these loans was resolved when the underlying collateral, a hotel, was sold to a third party. The bank charged off $475,000 in connection with the sale, all of which had previously been specifically reserved within the allowance for credit losses, or ACL. The other two loans, collateralized by a hotel and both to one borrower, were resolved through a bankruptcy judgement that allows the borrower to adequately service their debt coverage. The bankruptcy order resulted in a charge-off of $270,000, which had previously been fully reserved in the ACL. These loans were internally identified as problem assets prior to COVID-19 and were properly reserved.
During the first and second quarters of 2020, the Bank provided financial relief to many of its customers due to the COVID-19 outbreak through either 3-month principal and interest (“P&I”) payment deferrals or through 6-month interest-only (“I/O”) deferrals. Under the initial deferral program, the Bank provided 3-month P&I deferrals on 658 loans with principal balances of $247.8 million and provided up to 6-month I/O deferrals on 336 loans with principal balances of $183.7 million. As of June 30, 2021, there are no loans remaining in the P&I deferral program and there are seven loans totaling $41.9 million that remain in a subsequent I/O deferral program. We anticipate that all of these borrowers, who are primarily in the hotel and hospitality industry, will return to their contractual payment schedules at the end of their I/O deferral period in the third quarter of 2021 with no additional subsequent deferrals.
NON-GAAP RECONCILING TABLES
NON-GAAP RECONCILING TABLES
NON-GAAP RECONCILING TABLES
NON-GAAP RECONCILING TABLES
About Non-GAAP Financial Measures
Certain of the financial measures and ratios we present, including “tangible book value per share”, “net core earnings,” “core net interest margin,” and PPP-adjusted metrics are supplemental measures that are not required by, or are not presented in accordance with, U.S. generally accepted accounting principles (GAAP). We refer to these financial measures and ratios as “non-GAAP financial measures.” We consider the use of select non-GAAP financial measures and ratios to be useful for financial and operational decision making and useful in evaluating period-to-period comparisons. We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain expenditures or assets that we believe are not indicative of our primary business operating results or by presenting certain metrics on a fully taxable equivalent basis. We believe that management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, analyzing and comparing past, present and future periods.
These non-GAAP financial measures should not be considered a substitute for financial information presented in accordance with GAAP and you should not rely on non-GAAP financial measures alone as measures of our performance. The non-GAAP financial measures we present may differ from non-GAAP financial measures used by our peers or other companies. We compensate for these limitations by providing the equivalent GAAP measures whenever we present the non-GAAP financial measures and by including a reconciliation of the impact of the components adjusted for in the non-GAAP financial measure so that both measures and the individual components may be considered when analyzing our performance.
A reconciliation of non-GAAP financial measures to the comparable GAAP financial measures is included at the end of the financial statement tables.
Conference Call Information
The Company will hold a conference call to discuss second quarter 2021 financial results on Monday, July 19, 2021 at 10:00 am Central time. The conference call will be hosted by Ty Abston, Chairman and CEO, Cappy Payne, SEVP and CFO, and Shalene Jacobson, EVP and CRO. All conference attendees must register before the call at gnty.com/register. The conference materials will be available by accessing the Investor Relations page on our website, gnty.com. A recording of the conference call will be available by 1:00 pm Central time the day of the call and remain available through July 31, 2021 on our Investor Relations webpage.
About Guaranty Bancshares, Inc.
Guaranty Bancshares, Inc. is a bank holding company that conducts commercial banking activities through its wholly-owned subsidiary, Guaranty Bank & Trust, N.A. As one of the oldest regional community banks in Texas, Guaranty Bank & Trust provides its customers with a full array of relationship-driven commercial and consumer banking products and services, as well as mortgage, trust, and wealth management services. Guaranty Bank & Trust has 31 banking locations across 24 Texas communities located within the East Texas, Dallas/Fort Worth, greater Houston and Central Texas regions of the state. As of June 30, 2021, Guaranty Bancshares, Inc. had total assets of $2.93 billion, total loans of $1.89 billion and total deposits of $2.53 billion. Visit gnty.com for more information.
Cautionary Statement Regarding Forward-Looking Information
This communication contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views with respect to, among other things, future events and our results of operations, financial condition and financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” or the negative version of those words or other comparable words of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Actual results will also be significantly impacted by the effects of the ongoing COVID-19 pandemic, including, among other effects: the impact of the public health crisis; the extent and duration of closures of businesses, including our branches, vendors and customers; the operation of financial markets; employment levels; market liquidity; the impact of various actions taken in response by the U.S. federal government, the Federal Reserve, other banking regulators, state and local governments; the adequacy of our allowance for credit losses in relation to potential losses in our loan portfolio; and the impact that all of these factors have on our borrowers, other customers, vendors and counterparties. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. Such factors include, without limitation, the “Risk Factors” referenced in our most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q, other risks and uncertainties listed from time to time in our reports and documents filed with the Securities and Exchange Commission ("SEC"). We can give no assurance that any goal or plan or expectation set forth in forward-looking statements can be achieved and readers are cautioned not to place undue reliance on such statements. The forward-looking statements are made as of the date of this communication, and we do not intend, and assume no obligation, to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events or circumstances, except as required by applicable law.