Q2 Loan Pipeline And Repricing Will Strengthen Future Outlook

Key Takeaways

• The strong loan pipeline and expected deposit growth support revenue generation and enhance liquidity, benefiting future financial performance.
  
• Strategic share repurchases and potential reserve releases could improve earnings per share, boosting shareholder value.
  
• Loan book shrinkage and increased noninterest expenses could strain earnings, while national tariff uncertainties pose risks despite the strong Texas economy.

Catalysts

Operates as the bank holding company for Guaranty Bank & Trust, N.A.

• The strong loan pipeline in Q2 is expected to drive loan growth, which would positively impact future revenue and earnings.
  
• Anticipated repricing of $341 million in variable rate loans over the next 12 months, with an expected increase in weighted average rate, could enhance net interest margin and boost earnings.
  
• Strategic share repurchases using excess capital could improve earnings per share (EPS) by reducing the share count, thereby enhancing shareholder value.
  
• Potential future reserve releases if economic uncertainties clear up, like tariffs, could benefit earnings by reducing provision expenses.
  
• Expected deposit growth, driven by strong core deposit relationships and a mid-tier rate strategy, could support liquidity and balance sheet strength, aiding in further revenue generation opportunities.

Guaranty Bancshares Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Guaranty Bancshares's revenue will grow by 6.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 27.1% today to 28.4% in 3 years time.
• Analysts expect earnings to reach $42.4 million (and earnings per share of $3.92) by about April 2028, up from $33.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.7x on those 2028 earnings, down from 13.8x today. This future PE is greater than the current PE for the US Banks industry at 10.7x.
• Analysts expect the number of shares outstanding to decline by 1.39% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Guaranty Bancshares Future Earnings Per Share Growth

Risks

• The company's loan book decreased by $23 million in Q1, mainly due to paydowns and decreased utilization in the C&I sector, which could put pressure on revenue growth if loan demand does not recover quickly.
  
• Noninterest income dropped by $693,000 compared to Q4 2024, mainly from the loss of rental income and gains on real estate sales, which could negatively impact net margins if similar income sources do not replace these contributions.
  
• Elevated noninterest expense, particularly due to employee compensation and health insurance costs, increased by $1.3 million compared to the previous quarter, which can strain earnings if not offset by higher revenues or cost efficiencies in subsequent quarters.
  
• The Texas economy remains strong, but national uncertainty, particularly around tariffs, could indirectly affect the company's customers and ultimately impact its earnings if the broader economic environment turns unfavorable.
  
• Although the company maintains elevated qualitative factors for credit loss reserves reflecting a conservative stance, changes in economic conditions such as unresolved tariff issues might necessitate adjustments, potentially affecting future earnings.

Valuation

• The analysts have a consensus price target of $45.0 for Guaranty Bancshares based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $149.3 million, earnings will come to $42.4 million, and it would be trading on a PE ratio of 12.7x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $40.6, the analyst price target of $45.0 is 9.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.