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GUARANTY BANCSHARES INC /TX/ 10-K Analysis & Summary – 3/14/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Guaranty Bancshares, Inc.

Filing date:

03/14/2025

TLDR:

ELI5:

Guaranty Bancshares, a Texas bank, made a little more money from loans but less from other services in 2024. They’re being careful about who they lend to and are keeping a good amount of money in reserve.

Accession #:

0000950170-25-039120

Published on

Analyst Summary

  • Net Interest Income increased slightly to $97.9 million, driven by higher yields on interest-earning assets, but offset by increased interest expense on deposits; Net Interest Margin (FTE) improved to 3.32%.
  • Noninterest Income decreased to $20.7 million, primarily due to the absence of a one-time gain from the sale of nonmarketable correspondent bank stock in the prior year.
  • Noninterest Expense decreased slightly to $81.9 million, driven by lower employee compensation and benefits, offset by increased occupancy and other operating expenses.
  • Asset quality metrics remained relatively stable; ACL to Total Loans was 1.33%, and Nonperforming Assets to Total Assets was 0.16%.
  • Capital ratios remain strong, exceeding regulatory requirements; Total Capital to Risk-Weighted Assets (Consolidated) was 17.09%, and Tier 1 Capital to Risk-Weighted Assets (Consolidated) was 14.29%.
  • The loan portfolio decreased to $2.13 billion, reflecting a strategic decision to tighten credit underwriting standards and reduce exposure to certain sectors.
  • Total deposits increased slightly to $2.69 billion, with a shift from noninterest-bearing to interest-bearing accounts; Noninterest-Bearing Deposits to Total Deposits averaged 31.2%.

Opportunities and Risks

  • Risk: Earnings are sensitive to changes in interest rates, which could impact net interest income.
  • Risk: Business is heavily concentrated in Texas, making it vulnerable to regional economic downturns, particularly in the energy sector.
  • Risk: The financial services industry is highly competitive, with increasing pressure from larger institutions and fintech companies.
  • Risk: Stringent regulatory requirements and potential changes in regulations could increase compliance costs and limit business activities.
  • Risk: Increasingly sophisticated cyber threats pose a risk to the company’s data and operations.
  • Opportunity: Focus on organic growth and high-quality credits can lead to stable funding sources and improved profitability.
  • Opportunity: Potential for accretive acquisitions in complementary markets.
  • Opportunity: Expansion through de novo banking locations in attractive markets.
  • Opportunity: Diversifying revenue sources through treasury management, trust and wealth management, and SBA loans.

Potential Implications

Company Performance

  • Strategic shift towards higher-quality credits and balance sheet optimization is a positive sign for long-term stability.
  • Maintaining strong capital ratios provides a buffer against potential economic downturns.
  • Geographic concentration in Texas exposes the company to regional economic risks.
  • Interest rate sensitivity could impact future earnings if rates fluctuate significantly.

Stock Price

  • Stable asset quality and strong capital ratios could support investor confidence.
  • Decreased loan portfolio may raise concerns about growth prospects.
  • Exposure to the Texas economy could lead to volatility in the stock price.
  • The P/E ratio decreased from 15.63 to 14.60, a -6.59% change.
  • The P/B ratio decreased from 1.53 to 1.44, a -5.88% change.
  • The P/S ratio decreased from 2.59 to 2.50, a -3.47% change.
  • The EV/EBITDA ratio decreased from 5.52 to 3.25, a -41.12% change.

Guaranty Bancshares Inc. (GNTY) – 2024 10-K Filing Analysis

Executive Summary

Guaranty Bancshares Inc. reported a slight increase in net interest income but a decrease in noninterest income for the year ended December 31, 2024. The company’s strategic shift towards higher-quality credits and balance sheet optimization is evident. While capital ratios remain strong, potential risks include interest rate sensitivity, geographic concentration, and the evolving regulatory landscape. Overall, a cautious approach is warranted, suggesting a “Hold” rating. Further monitoring of loan portfolio performance and deposit trends is recommended.

Company Overview

Guaranty Bancshares, Inc. (GNTY) is a Texas-based bank holding company operating through its subsidiary, Guaranty Bank & Trust, N.A. The bank provides commercial and consumer banking services across East Texas, Dallas/Fort Worth, Houston, and Central Texas. As of December 31, 2024, GNTY had total assets of $3.12 billion, net loans of $2.10 billion, and deposits of $2.69 billion. The company emphasizes a community banking model and organic growth, supplemented by strategic acquisitions and de novo branching.

Detailed Financial Analysis

Net Interest Income (NII) and Net Interest Margin (NIM)

NII increased slightly, driven by higher yields on interest-earning assets, but offset by increased interest expense on deposits. The NIM improved slightly, reflecting better asset yields.

Key Metrics:

  • Net Interest Income: $97.9 million (2024) vs. $97.0 million (2023)
  • Net Interest Margin (FTE): 3.32% (2024) vs. 3.15% (2023)

Noninterest Income

Noninterest income decreased, primarily due to the absence of a one-time gain on the sale of nonmarketable correspondent bank stock that occurred in the prior year.

Key Metrics:

  • Noninterest Income: $20.7 million (2024) vs. $22.5 million (2023)

Noninterest Expense

Noninterest expense decreased slightly, driven by lower employee compensation and benefits, offset by increased occupancy and other operating expenses.

Key Metrics:

  • Noninterest Expense: $81.9 million (2024) vs. $82.4 million (2023)

Asset Quality

Asset quality metrics remained relatively stable. The allowance for credit losses (ACL) decreased due to a reduction in gross loan balances.

Key Metrics:

  • ACL to Total Loans: 1.33% (2024) vs. 1.33% (2023)
  • Nonperforming Assets to Total Assets: 0.16% (2024) vs. 0.18% (2023)

Capital Adequacy

Capital ratios remain strong, exceeding regulatory requirements.

Key Metrics:

  • Total Capital to Risk-Weighted Assets (Consolidated): 17.09% (2024) vs. 15.22% (2023)
  • Tier 1 Capital to Risk-Weighted Assets (Consolidated): 14.29% (2024) vs. 12.53% (2023)

Loan Portfolio

The loan portfolio decreased, reflecting a strategic decision to tighten credit underwriting standards and reduce exposure to certain sectors.

Key Metrics:

  • Total Loans: $2.13 billion (2024) vs. $2.32 billion (2023)

Deposits

Total deposits increased slightly, with a shift from noninterest-bearing to interest-bearing accounts.

Key Metrics:

  • Total Deposits: $2.69 billion (2024) vs. $2.63 billion (2023)
  • Noninterest-Bearing Deposits to Total Deposits: 31.2% (average, 2024) vs. 35.3% (average, 2023)

Uncommon Metrics

  • Longevity Severance: The introduction of a “Longevity Severance” payment for voluntary terminations without Good Reason after a certain tenure suggests a focus on retaining long-term employees.
  • Community Development Officer: The appointment of a Community Development Officer indicates a commitment to community involvement and social responsibility.

Risk and Opportunity Assessment

Risks

  • Interest Rate Risk: The company’s earnings are sensitive to changes in interest rates, which could impact net interest income.
  • Geographic Concentration: GNTY’s business is heavily concentrated in Texas, making it vulnerable to regional economic downturns, particularly in the energy sector.
  • Competition: The financial services industry is highly competitive, with increasing pressure from larger institutions and fintech companies.
  • Regulatory Compliance: Stringent regulatory requirements and potential changes in regulations could increase compliance costs and limit business activities.
  • Cybersecurity: Increasingly sophisticated cyber threats pose a risk to the company’s data and operations.

Opportunities

  • Organic Growth: Focus on organic growth and high-quality credits can lead to stable funding sources and improved profitability.
  • Strategic Acquisitions: Potential for accretive acquisitions in complementary markets.
  • De Novo Branching: Expansion through de novo banking locations in attractive markets.
  • Increased Earnings Streams: Diversifying revenue sources through treasury management, trust and wealth management, and SBA loans.

Conclusion and Actionable Insights

Guaranty Bancshares Inc. demonstrates a commitment to organic growth and maintaining strong capital ratios. However, the company faces challenges related to interest rate risk, geographic concentration, and the evolving regulatory landscape. The strategic shift towards higher-quality credits and balance sheet optimization is a positive sign. Given these factors, a “Hold” rating is appropriate. Investors should closely monitor loan portfolio performance, deposit trends, and the company’s ability to navigate the competitive and regulatory environment.

Disclaimer: This report is for informational purposes only and should not be considered financial advice. The analysis is based on publicly available information and involves subjective judgments. Investors should conduct their own due diligence before making any investment decisions.

Commentary

Guaranty Bancshares Inc. (GNTY) demonstrates stable but mixed financial performance between 2023 and 2024. Net earnings attributable to Guaranty Bancshares, Inc. increased slightly, while key profitability ratios like ROA and ROE showed marginal improvements. The bank experienced a decrease in total assets, driven by a reduction in the loan portfolio, but was offset by an increase in securities. Non-performing assets decreased, indicating improved asset quality, but revenue growth was minimal, suggesting challenges in expanding its top line.

Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin: Not applicable for a bank.
  • Operating Profit Margin: Calculated as (Net Interest Income + Noninterest Income – Noninterest Expense) / Total Revenue = (97,879 + 20,737 – 81,852) / (163,160 + 20,737) = 20.05%. Previous year: (96,980 + 22,513 – 82,354) / (156,492 + 22,513) = 20.78%

    • Trend: Decreased from 20.78% to 20.05%, a -3.51% change.
    • Industry: The operating profit margin for banks typically ranges from 25% to 35%. GNTY’s operating profit margin is below the industry average, suggesting potential inefficiencies in managing operating expenses or lower revenue generation.
  • Net Profit Margin: Calculated as Net Income / Total Revenue = 31,537 / (163,160 + 20,737) = 17.12%. Previous year: 30,037 / (156,492 + 22,513) = 16.77%

    • Trend: Increased from 16.77% to 17.12%, a 2.09% change.
    • Industry: The net profit margin for well-performing banks is typically between 15% and 25%. GNTY’s net profit margin is within a reasonable range, indicating sound profitability.
  • Return on Assets (ROA): Given as 1.01%. Previous year: 0.92%

    • Trend: Increased from 0.92% to 1.01%, a 9.78% change.
    • Industry: An ROA of 1% or higher is generally considered good for banks. GNTY’s ROA is at the lower end of the acceptable range, suggesting room for improvement in asset utilization.
  • Return on Equity (ROE): Given as 10.30%. Previous year: 10.10%

    • Trend: Increased from 10.10% to 10.30%, a 1.98% change.
    • Industry: An ROE of 10% or higher is generally considered good for banks. GNTY’s ROE is within the acceptable range, indicating reasonable returns to shareholders.
  • EPS (Basic): $2.75. Previous year: $2.57

    • Trend: Increased from $2.57 to $2.75, a 7.00% change.
    • Industry: EPS varies significantly based on the size and type of bank. A growing EPS is a positive sign, indicating improved profitability on a per-share basis.
  • EPS (Diluted): $2.74. Previous year: $2.56

    • Trend: Increased from $2.56 to $2.74, a 7.03% change.
    • Industry: Similar to basic EPS, a growing diluted EPS is a positive sign, especially since it accounts for potential dilution from stock options and other convertible securities.

Liquidity

  • Current Ratio: Calculated as Current Assets / Current Liabilities. Approximating current assets as Cash and Cash Equivalents + Securities Available for Sale + Loans Held for Sale + Accrued Interest Receivable = 145,964 + 340,304 + 143 + 12,016 = 498,427. Approximating current liabilities as Deposits + Securities Sold Under Agreements to Repurchase + Accrued Interest and Other Liabilities + Line of Credit = 2,692,167 + 31,075 + 31,320 + 0 = 2,754,562. Current Ratio = 498,427 / 2,754,562 = 0.18. Previous year: Approximating current assets as Cash and Cash Equivalents + Securities Available for Sale + Loans Held for Sale + Accrued Interest Receivable = 89,524 + 196,195 + 976 + 13,143 = 299,838. Approximating current liabilities as Deposits + Securities Sold Under Agreements to Repurchase + Accrued Interest and Other Liabilities + Line of Credit = 2,633,246 + 25,172 + 32,242 + 4,500 = 2,695,160. Current Ratio = 299,838 / 2,695,160 = 0.11

    • Trend: Increased from 0.11 to 0.18, a 63.64% change.
    • Industry: A current ratio of 1 or higher is generally preferred. GNTY’s current ratio is significantly below 1, indicating potential liquidity concerns. However, for banks, this ratio is less critical than for other industries, as they have access to other funding sources.
  • Quick Ratio (Acid-Test Ratio): Calculated as (Current Assets – Inventory) / Current Liabilities. Since inventory is not applicable for a bank, this is essentially the same as the Current Ratio. Quick Ratio = 0.18. Previous year: 0.11

    • Trend: Increased from 0.11 to 0.18, a 63.64% change.
    • Industry: Similar to the current ratio, a quick ratio of 1 or higher is generally preferred, but less critical for banks.
  • Cash Ratio: Calculated as Cash and Cash Equivalents / Current Liabilities = 145,964 / 2,754,562 = 0.05. Previous year: 89,524 / 2,695,160 = 0.03

    • Trend: Increased from 0.03 to 0.05, a 66.67% change.
    • Industry: The cash ratio is a very conservative measure of liquidity. Banks typically operate with low cash ratios, relying on other liquid assets and access to funding.

Solvency/Leverage

  • Debt-to-Equity Ratio: Calculated as Total Liabilities / Total Equity = 2,796,480 / 319,074 = 8.76. Previous year: 2,880,945 / 303,846 = 9.48

    • Trend: Decreased from 9.48 to 8.76, a -7.59% change.
    • Industry: The debt-to-equity ratio for banks can vary, but a ratio below 10 is generally considered acceptable. GNTY’s debt-to-equity ratio is within a reasonable range, indicating a balanced capital structure.
  • Debt-to-Assets Ratio: Calculated as Total Liabilities / Total Assets = 2,796,480 / 3,115,554 = 0.898. Previous year: 2,880,945 / 3,184,791 = 0.905

    • Trend: Decreased from 0.905 to 0.898, a -0.77% change.
    • Industry: Banks typically have high debt-to-assets ratios due to the nature of their business. GNTY’s debt-to-assets ratio is typical for a bank, indicating that a significant portion of its assets are funded by debt.
  • Interest Coverage Ratio (Times Interest Earned): Calculated as Earnings Before Interest and Taxes (EBIT) / Interest Expense = (38,964 + 65,281) / 65,281 = 1.60. Previous year: (37,139 + 59,512) / 59,512 = 1.62

    • Trend: Decreased from 1.62 to 1.60, a -1.23% change.
    • Industry: An interest coverage ratio above 1.5 is generally considered acceptable. GNTY’s interest coverage ratio is adequate, but a slight decrease indicates a reduced ability to cover interest expenses.

Activity/Efficiency

  • Inventory Turnover: Not applicable for a bank.
  • Days Sales Outstanding (DSO): Not directly applicable for a bank.
  • Days Payable Outstanding (DPO): Not directly applicable for a bank.
  • Asset Turnover: Calculated as Total Revenue / Total Assets = (163,160 + 20,737) / 3,115,554 = 0.059 or 5.9%. Previous year: (156,492 + 22,513) / 3,184,791 = 0.056 or 5.6%

    • Trend: Increased from 5.6% to 5.9%, a 5.36% change.
    • Industry: Asset turnover for banks is typically low. GNTY’s asset turnover is within a reasonable range, indicating how efficiently it uses its assets to generate revenue.

Valuation

  • Price-to-Earnings Ratio (P/E): Calculated as Stock Price / EPS = 40.16 / 2.75 = 14.60. Previous year: 40.16 / 2.57 = 15.63

    • Trend: Decreased from 15.63 to 14.60, a -6.59% change.
    • Industry: The P/E ratio for banks varies, but a range of 10-15 is common. GNTY’s P/E ratio is within this range, suggesting it is reasonably valued compared to its earnings.
  • Price-to-Book Ratio (P/B): Calculated as Stock Price / Book Value per Share = 40.16 / 27.86 = 1.44. Previous year: 40.16 / 26.28 = 1.53

    • Trend: Decreased from 1.53 to 1.44, a -5.88% change.
    • Industry: A P/B ratio between 1 and 2 is often seen as reasonable for banks. GNTY’s P/B ratio is within this range, suggesting it is reasonably valued compared to its book value.
  • Price-to-Sales Ratio (P/S): Calculated as Market Cap / Total Revenue. Market Cap = Shares Outstanding * Stock Price = 11,431,568 * 40.16 = 459,070,000 or 459,070 (in thousands). Total Revenue = 163,160 + 20,737 = 183,897. P/S = 459,070 / 183,897 = 2.50. Previous year: Market Cap = Shares Outstanding * Stock Price = 11,540,644 * 40.16 = 463,467,000 or 463,467 (in thousands). Total Revenue = 156,492 + 22,513 = 179,005. P/S = 463,467 / 179,005 = 2.59

    • Trend: Decreased from 2.59 to 2.50, a -3.47% change.
    • Industry: The P/S ratio for banks is typically low. GNTY’s P/S ratio is within a reasonable range, suggesting it is reasonably valued compared to its revenue.
  • Enterprise Value to EBITDA (EV/EBITDA): EBITDA = Net Income + Interest Expense + Taxes + Depreciation + Amortization = 31,491 + 65,281 + 7,473 + 4,311 + 702 = 109,258. Enterprise Value = Market Cap + Total Debt – Cash and Cash Equivalents = 459,070 + (41,918 + 0) – 145,964 = 355,024. EV/EBITDA = 355,024 / 109,258 = 3.25. Previous year: EBITDA = Net Income + Interest Expense + Taxes + Depreciation + Amortization = 30,009 + 59,512 + 7,130 + 4,042 + 734 = 101,427. Enterprise Value = Market Cap + Total Debt – Cash and Cash Equivalents = 463,467 + (45,785 + 140,000) – 89,524 = 559,728. EV/EBITDA = 559,728 / 101,427 = 5.52

    • Trend: Decreased from 5.52 to 3.25, a -41.12% change.
    • Industry: The EV/EBITDA ratio for banks typically falls between 6 and 12. GNTY’s EV/EBITDA ratio is below this range, suggesting it may be undervalued compared to its earnings before interest, taxes, depreciation, and amortization.

Growth Rates

  • Revenue Growth: Calculated as (Current Year Revenue – Previous Year Revenue) / Previous Year Revenue = ((163,160 + 20,737) – (156,492 + 22,513)) / (156,492 + 22,513) = 2.73%.

    • Industry: Revenue growth for banks varies depending on economic conditions and strategic initiatives. A positive revenue growth rate is generally desirable.
  • Net Income Growth: Calculated as (Current Year Net Income – Previous Year Net Income) / Previous Year Net Income = (31,537 – 30,037) / 30,037 = 5.00%.

    • Industry: Net income growth is a key indicator of profitability. A positive growth rate is generally desirable.
  • EPS Growth: Calculated as (Current Year EPS – Previous Year EPS) / Previous Year EPS = (2.75 – 2.57) / 2.57 = 7.00%.

    • Industry: EPS growth is a key indicator of profitability on a per-share basis. A positive growth rate is generally desirable.

Other Relevant Metrics

  • Pre-tax, pre-provision, pre-PPP net earnings attributable to Guaranty Bancshares, Inc.: This is a non-GAAP metric that adjusts net earnings by excluding the provision for credit losses, income tax provision, and PPP-related items. It provides a view of the company’s core earnings power.

    • Calculation: Given as $36,810 (2024) and $37,146 (2023).
    • Significance: This metric helps investors understand the underlying profitability of the bank’s operations, excluding the impact of credit loss provisions, taxes, and the Paycheck Protection Program.
    • Trend: Decreased from $37,146 to $36,810, a -0.90% change. The decrease suggests a slight weakening in core earnings power.
    • Criticism: While this non-GAAP metric provides additional insight, it’s important to consider that it excludes real expenses and income (taxes, credit losses, and PPP income). Investors should be cautious when relying solely on non-GAAP metrics and should always consider GAAP measures as well.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️