GNTY (2021 - Q1)

Good morning. Welcome to the Guaranty Bancshares’ First Quarter 2021 Earnings Call. My name is Nona Branch and I will be your operator today. This call is being recorded. After the prepared remarks, there will be a Q&A session. [Operator Instructions]. Our host for today's call will be Ty Abston, Chairman and Chief Executive Officer of the Board, the company; Cappy Payne, Senior Executive Vice President and Chief Financial Risk Officer; Shalene Jacobson, Executive Vice President and Chief Risk Officer. Today, our call -- to begin our call, I will turn it over to our CEO, Ty Abston. Ty Absto

Good morning, everyone. Again, welcome to our first quarter call, where we're going to do a presentation for you, as Nona mentioned and go through that and then answer any questions you have. We have had a good quarter. We're very -- feel very good about how things are opening up in our economy, in Texas, and pretty positive about not only the overall state of the economy in Texas, but the markets we're in, and kind of how the bank's prospects look for the remainder of the year. So we'll go through some of these numbers and the key points we want to present to you and then we'll answer questions. Cappy?

Thank you, Ty. Good morning, everyone. Let me -- I’ll quickly kind of go over a few highlights of both the balance sheet and the income statement. I think many of you have seen the earnings release that was obviously put on the wire this morning. So I'm not going to read anything to you, but our balance sheet trend really over the last five quarters has been continually moving a little higher. I think, again, most of you have seen this in the industry. Our total assets at quarter end were $2.89 billion, that’s up $150 million linked quarter, and $500 million from a year ago. We know a lot happened this year, no doubt. And most bank’s balance sheet, as I said, probably have expanded due to the PPP and the multiple stimulus payments. So there's probably a trend you're seeing a lot of. For my focus this morning I'll just -- I'll address mainly the loans, deposits and liquidity. You'll notice on the balance sheet our temporary investments, mainly our Fed Funds increased significantly linked quarter. We continued to have strong liquidity due to the increase in deposits. I'll get more into detail on that on the earnings mix. Our earnings asset mix, I guess here in just a minute though. Loans obviously make up the biggest part of the asset section. Loans are up $45.5 million from prior quarter, as most banks have, Guaranty participated in round 2 of the PPP. We started that funding during the quarter. And this quarter in round two, we funded $84 million in round two and was offset by a decrease in round one of pay downs or forgiveness, I guess if you will, of approximately $66 million. So the net increase in PPP loans for the quarter about $18 million. The other $27.5 million in growth came in just -- came in our loan book mainly in our central Texas, DFW and Houston regions. Those markets were up nicely. And if you ex out that PPP, net growth was an annualized about 6.4%. Then on the deposit side also showed a nice increase. We were up $189 million or 8.3% and ended the quarter at $2.48 billion in total deposits. I think worthy to note is that that's a -- this is a $475 million increase from a year ago. As we've seen in the last 12 months, I know we've talked about it in prior calls, I think just customer spending habits, PPP funding, the stimulus payments just probably as an overall increase in savings patterns have contributed to this increase in deposits. And we continue to have a high percentage of that, of our deposits in non-interest bearing which is now at 35% of total deposits. Stockholders equity grew $7.5 million linked quarter and $26.5 million from a year ago. We did not buy back any stock during the quarter. As you know, we're pretty active in the stock buyback program in 2020. We just don't see that as best strategy for our capital at this point in time. And so we did not buy back any stock during the quarter. And as indicated in the earnings release, we did pay another $0.20 quarterly cash dividend. And we also issued a 10% stock dividend, which was a little bit unusual event. I guess just one note, we did not restate historic per share data related to this 10% dividend, which by the way, added about 1.1 million additional shares outstanding and we did this really right in the middle of the quarter, mid-February. We're going to go back and address this restatement of prior historical data before we file our 10-Q for the quarter, just FYI. I do think our stock dividend was -- went very well, with our shareholders. They liked it. Of course, everybody likes the cash dividend. And we got a long track record, I think about 30 year history of paying an increased dividend, cash dividend. So that -- we're proud of that, and the return that that's providing on a cash basis for our shareholders. Looking over the income statement, as Tom mentioned, we're very pleased with our net earnings performance for the quarter. We had a strong performance in 2020. And we followed that with the first quarter of 2021. And again, I think as Ty alluded to, we like where we're positioned. We have a strong balance sheet and a pretty diversified earnings stream, especially as the Texas economy looks to really open up here pretty soon. So our net earnings for the quarter were $11 million. That's a reported earnings per share of $0.95 a share. That's up from prior quarter of $9.9 million in earnings in fourth quarter of 2020, and $11 million for the first quarter is an ROA of 1.6% and an ROE of 16%. So really good numbers that are tracking positively. We did provide in the earnings release a detailed table that highlights our core earnings, which is our -- what we classify as our earnings before credit provision, before income tax, and before all PPP effects. Here, we're just trying to take out some of the recurring and non-recurring noise in the numbers, mostly the PPP effects, since that's so extraordinary. And that way we can point out our real core earnings stream. So in first quarter, this year, you'll note that our core earnings were $9.8 million, compared to the linked quarter or Q4 of last year of $9.6 million comparable, but still positive trends. And if you take that $9.8 million that gets our core earnings per share at $0. 85 a share for Q1. So let's talk a little bit about margin. I know a lot of you put a lot of focus on that, we do too. We're very, very focused on our margin. But then in looking at the PPP effects, we continue to have a strong reported net interest margin for the quarter. It was 3.85% fully tax equivalent. And that compares really equal to that same amount of margin for Q4. It was also at 3.85%. Now backing out the PPP effects, and again, we have a table in there that shows that for Q1, the margin was 3.48% compared to 3.70% for linked quarter. I do want to emphasize some positive here. I know we need to also understand on what's driving it down some, in addition to that. But you'll notice on that table our loan yield ex PPP was 4.79% in Q1, and that compares to 4.83% in Q4 of last year. That's down four basis points. But I think that's very positive and that we're able to hold on with some headwinds, obviously on our loan book. But as stated in the press release, we've got about two-thirds of our loans that do have rate floors, and just over half of those are currently sitting on their floor. So I think that's very positive news. And I guess the second thing positive I'd like to point out is our cost of interest bearing deposits. They decreased 9 basis points in Q1 to 0.42%. And if you look back at our total cost of deposits, which includes that 35% of interest bearing deposits, then our Q1 total cost of deposits were 0.27%. And that would be compared to 0.33% during Q4. So, we continue to have positive trends there to help out our margin. But I guess the negative aspect of our margin is that strong liquidity position I was referring to earlier. I think, a little surprisingly, to us anyway, much more of our growth and deposits have stayed longer than we projected in our modeling. So now and in Q1, we have a much higher mix of our earning assets and temporary investments. Just to give you a little color on that, briefly in Q1, we averaged 13% of our earning assets in Fed funds. Compared to Q4 it was 6% of our earning assets. So by our estimates, our excess liquidity has put a drain on our margin of about 25 basis points if we were to drop the liquidity to a more normal level. So again, really kind of modeling out where that continued deposit mix is going to stay in, it did have headwinds on our NIM, no doubt about 25 basis points because of the excess liquidity. And of course, there's a temporary drain on income as well as margin. But we just didn't -- don't think it's prudent to really go big into the bond market at the current interest rate levels. We are buying slowly into -- in some mortgage securities as the yield curve tries to steepen. But we're not going to add any significant duration risk at these current interest rate levels. So that's a decision we've made. And then thus we've had a little bit of drain on our margin because of it. We do model out though deploying more of our liquidity and loan growth during quarter Q2, Q3 and Q4, especially as the economy begins to open up even more. And looking at non-interest income, it continues to remain strong. We are at $6.1 million for the quarter. That is down slightly from linked quarter by about $307,000 or just under 5%. And of course, as most of you I'm sure have seen the biggest variance is in a decline in our gain on selling mortgage loans. It was down $500,000, both -- but both our mortgage and warehouse lending group continue to do well and have a good volume in the pipeline. The mortgage volume obviously is seasonal. Q1 is historically lower volume for our quarter then then Q2 and Q3. It was a good quarter, but we are modeling Q2 and Q3 to do better, especially due to the hot real estate market here in Texas. What could hold that down somewhat, I think for everyone is the housing inventory across the state in general is pretty low. As an example in DFW there's little over a one month inventory supply of homes on inventory when the equilibrium is closer to six months. So challenges ahead no doubt. We did -- we see the volume continuing to be strong though in those two departments. Operating expenses we're actually down a little below our budget for Q1 numbers. Really the only extraordinary information we put out there in the expense column was due to PPP2 origination costs deferred of $392,000. So real quick the efficiency ratio was 56.6% stated compared to 59.8% linked quarter. And again, if you back out the effects of PPP, the efficiency ratio for the quarter was 65.3% compared to linked quarter of 65.6%. So continue to have good trends in that regard also. I'll turn it over to Shalene and her topics.

Great. Thank you, Cappy. So with respect to COVID we are definitely seeing more activity on the roads, in stores and in restaurants around Texas. As you all know, our Governor Abbott removed all COVID-related restrictions a couple of months ago. And there are still some local or business specific restrictions, but we're definitely starting to see people get out a lot more. The local news reports also indicate the people are making progress with vaccinations. They definitely appear to be more readily available. So we're optimistic that we can achieve that herd immunity goals sooner rather than later and hopefully get back to normal. And speaking of normal, all of our lobbies are back open at normal banking hours now. We still have approximately 10% to 15% of employees working remotely. We expect all of them to return to their office or in bank work environments by May the 1 of this year. We are excited to say that we again participated in the PPP round 2 program, which began in January and is expected to go through May 31, or until those funds are depleted. As of March 31, we originated $84.5 million of PPP, round 2 loans to 932 borrowers. We recognized origination income from those loans of $1.8 million during the quarter, and we deferred $2.1 million net of origination costs of $392,000, which Cappy just mentioned. With respect to the PPP, round 1 loans that originated back in 2020, there has been 135.9 million or 64.8% of those dollars forgiven by the SBA so far. So between both rounds one and two of PPP, we have about $2.9 million of deferred income remaining as of quarter end, although we do expect to record a bit more during Q2 as PPP, round 2 wraps up. And we're definitely encouraging everybody from PPP1 to submit their forgiveness applications. We think borrowers are really going to be interested in that as they start having to make payments here pretty soon if their loans aren't forgiven. So we anticipate quite a bit more of the PPP round 1 loans to be forgiven over the next quarter or two. And then we will start accepting PPP round 2 forgiveness applications, when the program ends on May 31, or sooner if the funds are depleted, though we haven't had anything forgiven there. But we also have lots of customers already, lots of borrowers in PPP 2 who are already wanting to submit that application for forgiveness. So we anticipate that those funds will hopefully be forgiven pretty quickly through 2021 as well. As far as the COVID-related deferrals that we had under The CARES Act as of March 31, there are no principal and interest deferrals remaining. And we do have 11 loans that remain on an interest-only deferral that have balances of $49.8 million. Those are primarily hotel and hospitality-related and Ty may want to comment on this, but I believe all of them have very positive trends in occupancy. We expect them to be back on contractual payments at the end of their interest-only deferral period. And we don't anticipate any further COVID-related deferrals across our portfolio. So that's all I have to say. I will now turn it over to Ty to address our overall loan portfolio and non-performing assets.

Thank you, Shalene. So like I said, we're seeing increased loan demand and loan opportunities in all of our markets across our footprint. Obviously, there's a lot going on in the DFW market. The Houston market is active. The Central Texas market, particularly Austin, MSA is very active. We're opening two locations, additional locations in the Houston region, Lakeway, Georgetown and have we think strong lending teams there that should help us grow, continue growing that Austin presence. We're seeing -- I think I mentioned this last quarter, surprising through all this, we're seeing a lot of strength and opportunity in our east Texas regions, in our footprint opportunities and really strength that I haven't seen in 30 years. It's -- we're seeing opportunities as far as loan opportunities in the East Texas region. We're seeing deposit relationship opportunities and just strengthened real estate prices and activity. And think a lot of that has to do with really with COVID because a year ago, that really -- we didn't see that strength. We're seeing people move in from around the state around the country and not move to the metro markets. That's something new that we're seeing that is kind of surprising. But I guess it makes sense for some people that are working remote or have to work two or three days a week in a metro market and are deciding to buy property and homes out in the out in the real market. So that's been surprising. And we think there's some opportunities there for us, really, across the board and East Texas region that again, a year ago, I probably wouldn't have said we had in front of us. Related to deferrals, like Shalene said, we have a handful of hospitality loans that are on interest to borrow, they will go back on contract by the end of Q2. Those were loans that had low loan value, good equity positions, good guarantor strength. They -- it was a situation where they didn't have to have a deferral, but we felt that helped them to retain their liquidity to give them interest only. So we did and we were pretty accommodative through this last year. And those are credits we're very comfortable with. They'll go back on contract like I said in the second quarter, and really, we're seeing a real uptick in hospitality across the board. The good news there haven't been new properties brought online, obviously, in the last year, and probably won't be next year or two. So it may be counterintuitive, but I'm actually kind of positive -- still pretty positive about that sector right now going for the next year or two. We're seeing -- on our non-performing assets, we saw definite improvement in that ratio for the quarter. The total in non-performing assets were primarily three or four loans we acquired from Westbound, three -- two or three years ago, I guess it was. And those resolved during the quarter. The charge off recorded for the quarter were pretty much 90% charging off the balances, losses that we had in those a couple of those westbound loans that we had well reserved. In fact, I think we released $400,000, $500,000 excess reserves in those credits. So our problem assets are pretty low, but our asset quality continues to be very strong. And we were built knowing comfortable and confident of our asset quality, but the lack of the reserves, we took this time last year, prudently very conservative with what we actually received from this. But that is -- that's kind of a quick recap of our loans and credit. I'll turn it over to Shalene, let her speak a bit more about CECL and then we can cover some more on the credit side of it in Q&A.

Okay, great, thanks, Ty. There was no ACL provision or reverse provision in Q1. Within our CECL model, we have nine standard qualitative factors that we developed as part of our methodology, that when COVID began in early 2020, we chose to create a hopefully temporary COVID specific Q factor, which we've described in prior filings and earnings calls that added about 55 basis points of reserves to our portfolio. So the Texas economy is showing some positive trends from the baseline that we used to develop that back in March and April of 2020. The economy here was really at its worst. So throughout the upcoming year, what we plan to do is cautiously unwind that COVID specific qualitative factor that we put in place while transitioning some of that COVID residual risk, or really any other risks that come about during the year back to our standard nine qualitative factors within the model. So during Q1, we reduced the COVID specific Q factor by about 14 basis points. But that was offset by some growth in our loan portfolio, as well as some adjustments we made to the standard qualitative factors for items such as concentration changes in certain segments and possible impacts of tax rate increases on our borrowers over the next couple of years. So as a result of those changes, our first quarter allowance for credit losses, excluding PPP loans is now at about 1.87% of total loans. As we unwind that COVID specific factor that I was telling you about, we don't anticipate that we're going to release all of the effects of that. We do think that there's going to be some research old COVID risks that we're going to account for in our standard qualitative factors. So we're going to be cautious and conservative about releasing that but we do believe that if our portfolio continues to grow and the asset quality trends stay as they are that we probably will need to release some additional reserves throughout 2021. So Ty and Cappy, unless you have anything else to add, that concludes our planned remarks, and we can turn it over to Nonette for Q&A.

Thank you, Shalane [Operator instructions]. Our first call today is from Matt only with Stephens. And Matt, your line should be unmuted.

Okay, great. Thanks. Good morning, guys. Can you hear me?

Sure, hi, Matt.

I'll start, I guess with Ty, you made some interesting comments about seeing some surprising strength in the East Texas markets. It's great to hear this. It sounds like the bank could benefit from this. But for the last several years, I think you've worked hard to move into some other Texas Metro markets in order to get more growth. If you're starting to see a shift of more growth in East Texas, does it give you any pause to your growth strategy in other markets? I'm just trying to appreciate if the trend continues. Is there any strategic shift we could see?

Thanks, Matt. No, no, there would not be a change in our overall philosophy in view of the fact that the majority of the growth in Texas, the next 20 years are going to be in the DFW-Central Texas-Houston regions. But what it has done is increased our focus and attention that we're paying to the East Texas markets as far as opportunities we see to grow within the East Texas footprint. So I wouldn't -- it doesn't change the strategy. But it's definitely something that we're looking at as we're updating our strategic plans. We see opportunities in these types of region that we just haven't seen in a long time. So we think that's a net positive, but we're going to continue the strategy of growing throughout our footprint.

Okay, got it. And then on the deposit side, another great quarter of deposit growth. Any more details you can provide about the pace of the growth in the quarter? Was it steady throughout the quarter? Or did it accelerate towards the end? Or what have you seen in recent weeks? I’m trying to appreciate if this growth can continue in the near term.

I'll answer that Matt. No is a pretty steady growth during the quarter. I think, again, part of that's going to be the some of the PPP money that's just kind of hanging on to be conservative on businesses' balance sheets. But it we've seen, I think each month was an increase in deposits now. So I will say this, about $30 million of that is public fund-related. I failed to mention that and it should have. But traditionally in Q1, that's an increase in public fund money. Each first quarter we get growth in public fund money, and then it starts going out in Q2 and Q3. And it starts building back up in Q4. So that's pretty traditional. So part of that was lapped but now we did -- we've seen a continual increase in deposits throughout the quarter.

And then, Cappy, it sounds like you're still not very excited about investing liquidity in a securities portfolio. I would love to hear how you guys are thinking about that, that potential and when you would consider that more throughout the year?

Well, we did increase our security portfolio, you'll notice, the end of period in Q4 to end of period in Q1 of this year. As I said, we're going to gradually go into it some. We're not going to leave all that money parked on the sideline. But a couple of thoughts, as I alluded to that the rate environment isn’t great and it does potentially put in a lot of interest rate risk in an upgrade environment which at some point in time we're going to have. And two we do plan on our loan growth continue upward. And we think we can deploy more money in Q2 and Q3 specifically in the loan book. But we are willing to take a little bit of a decrease in earnings and I guess some headwinds to the NIM by keeping that money parked on the sidelines a little more conservatively.

Let me add a little bit to that Matt. We like, Cappy said I would look at what we're doing basis dollar cost averaging in the bond portfolio where we did have concerns with rates being as low as they are, buying in the bond portfolio and adding to the bond portfolio. But that being said, it's a bet on the other side to sit on all cash and not buy bonds. So we're just -- the intent is to buy bonds as we go along in each quarter. But as Cappy said though, we're also planning to continue to grow the loan book and deploy some of that liquidity in the loan portfolio. Our model continues to be to develop core deposits. And so one thing we're -- I'm doing a video for employees after this call, and we're talking about the next quarter and the fact that we're going to get out again and go on offense and be out in customers -- in customers’ businesses, and doing calls and developing core deposit relationships and core loan opportunities for the company. So -- we're going to continue to develop our deposit base. We're going to be thoughtful in how we deploy it, certainly in the bond -- longer bond side or bond market instruments, but we're still also looking at deploying more of our liquidity into loans as we grow throughout the year. We're still guiding kind of mid-single digit loan growth. That's probably going to end up being a little conservative, but we're still being a little cautious with how we got going forward given there's still some unknowns out there. But again, overall, we're very confident and pleased with what we're seeing as far as the strength in overall economy in Texas.

Okay, great. Well, thanks for the commentary and Nonette I’ll hop back in the queue.

Thanks, Matt.

Okay, our next call is going to be from Brady Gailey with KBW.

Thanks. Good morning, guys.

Hey Brady.

Hey, Brady.

I wanted to start with the PPP income. I know you highlighted, as about $3.5 million this quarter. How do you envision that income playing out for the next couple quarters going forward?

Well, we have -- this is Cappy. We have more loans that we are booking in Q2. So we do take some of that when we book it. So there'll be a little bit more increase because of that in Q2, but then it's going to really depend on the forgiveness piece going forward, especially in round 2. I think they pretty well got it figured out. The SBA got the program figured out, as we're seeing round 1 being forgiven. We're down quite nicely in it. And some of that will continue. Obviously, that will continue to go down. So we'll get some income in Q2, 3 and 4, I think for round 1 and for round 2. But it's hard to model out how much, how quick the SBA will get that money to us. But we do see a pretty good amount to be recorded yet in 2021.

All right. And then, I heard your comments about not being as interested in the buyback. Obviously, the stock has done really well. It's almost two times tangible book value now. Maybe on the flip side, is that you have a currency that is more valuable now. What's your take on bank M&A? And we saw a big deal last week in Texas, but what -- I know you guys have bought some nice franchises over time, but how are you thinking about bank M&A with you guys as a buyer?

Brady, this is Ty. Let me take that. So we're definitely looking at opportunities throughout our footprint. We're seeing increased conversations. It does help that we have -- our stock price is stronger. And I think you'll -- I mean, I think you'll see some additional activity in M&A throughout our state. And we're definitely in those conversations. Certainly banks will vary in [ph] the calls that they make. And so we're going to continue to be disciplined with how we approach that. But at the same token, we think it's a pretty good opportunity, not only where our stock is at but just opportunity with the economy and everything to possibly do some acquisitions as we go forward. So that's -- I mean, we're obviously more focused on that today than we were a year ago. And we think that'll continue at least for the foreseeable future.

Okay, so then lastly, for me, is just on loan growth. I know you guys just touched on it. You're sticking to your mid-single digit loan growth guidance, but the tone definitely feels a lot better. I mean, would it be far off to think about you guys doing double digit loan growth for the next couple of years?

That wouldn't be out of the possibility -- of the realm of possibilities, no. I mean, but we'll try to kind of give more detailed guidance on that as we get through midyear. But yes, we were seeing a lot of opportunities mid-single digit may prove to be conservative, without a doubt, and we'll try to update as we get further into the year.

Great. Thanks, guys.

Thanks Brady.

Our next question will be from Brad Milsaps of Piper Sandler. Brad, you should be ready.

Hey, good morning. Am I coming through?

Yeah, Brad.

Hey, Brad.

Hey, guys. You guys have addressed most everything, but wanted to follow up on the loan growth. I think last quarter that you mentioned, you hired six new lenders in the fourth quarter. And those folks kind of averaged anywhere from $30 million to $75 million at their previous banks in terms of their loan portfolio. I don't think your loan growth guidance of mid-single digits included any production from those folks. But just curious, did they drive any of the growth in the first quarter? Have you hired anyone else new? And does that production from them maybe kind of bridge to maybe some higher loan growth levels as you move through the year?

So Brad, this is Ty. So yes, that definitely gives us tailwinds on our loan growth with the lenders we've brought online, I would -- I don't think there's a lot of their production in Q1, maybe a little bit. But we've brought on at least one other lender, I think since your last call, maybe two. So yes. And that's what I'm saying that as we get to midyear, we'll give some more detailed guidance on that, on loan growth. But without a doubt we have tailwinds there with not only just what's going on with overall economy, but with the lender, lending teams [ph] we've brought on -- within our different regions.

Great, thanks. That's helpful. And I hear you guys loud and clear on not willing to maybe add to the bond portfolio, but I do think it's interesting, the yield there stayed relatively flat for three consecutive quarters. Just kind of curious through how you've been able to do that even though, you are reinvesting kind of what you're buying and kind of where new bonds are coming on kind of relative to the book yield?

Well, one -- this is Cappy. One reason for that, Brad is for years now, we've been on the level yield accounting method that takes a little bit of rodeo out of that in how we amortize the premium and accrete the discounts. And we've been doing that for 6, 7, 8 years now for quite a while. So that makes the yield a little a little more level. So that's the main reason why it has stayed consistent. Now some of the bonds obviously, they were bringing in are going to be a little bit lower. And I think that's going to weigh it down some and has, but the main reason is the accounting treatment is the level of interest level -- level of interest rate.

Okay. And then finally, Cappy 42 basis points on interest bearing deposit costs. How much more room do you think you have to drive down lower?

I think in Q2, that will go down. I think, probably not the level of nine basis points that we did comparable to linked quarter, but there is room for it to go down more, I would say in the five plus basis points. So it's going to continue to improve in Q2.

Okay, great. Thank you, guys.

Thanks, Brad.

We have another question from Matt Olney.

Thanks. Nonette, just to follow up with respect to credit and the $50 million of loans that are interest only, that on that six month window, I guess, when does that window start to expire for the majority of those borrowers and remind me how those loans of the $50 million how are those currently rated internally? And could we see additional downgrades over the next few quarters as that six month term expires? Thanks.

So thanks, Matt. So this is Ty. So they are all coming out of that program, I believe at the end of Q2, I think every one of them. So they'll go back on contract in Q2. We have them graded very conservatively in house. We don't see exposure in those credits and we haven't from day one. Like I said, we just wanted to give them some relief on some of the -- on the principal portion of payment. But the loans have a group that -- and I believe the majority of the dollars are actually with one group that has strong liquidity and strong guarantor support and actually have very low LTV. So we're very comfortable with the credits. We just gave them that program to kind of get them through this but we will actually be upgrading and not downgrade them from where we have them.

Okay And Ty as far as the resolution of those lingering credits in the first quarter, I think those were mostly hotel loans in that Houston market. I think from our side, we're trying to understand that the market value of these hotels post-pandemic. Is there anything else you can you share with us about how these hotels are being valued today versus pre-pandemic?

It really depends. But we're seeing we see different valuations for different sectors in hospitality. But overall, I will say it strengthened quite a bit. There's quite a bit of money out there looking to invest in hospitality. And so for instance, one of these had two or three different people trying to buy it. So I think my best guess is valuations are actually getting back to with 80% before they were pre-pandemic. Again, I mean the challenge in hospitality is always the the supply side of how many properties are brought on line. And that's pretty much been muted and will be muted going forward. And so we are going to start seeing some real opportunities in occupancy and think you'll see a real improvement in that area. So we're -- I mean, the valuations then improve without a doubt. They're not probably back where they were 100% pre-pandemic, but they're getting closer.

Okay, thanks. And then on the loan balances, any color on the mortgage warehouse balance, the change from last quarter?

No, nothing specific, specific. We just -- we saw quite a bit of growth in the warehouse space, as well as the mortgage division. And that's starting to level out a little bit from where we stand today, but it was a strong quarter and kind of followed up with a strong quarter in fourth quarter. So both our mortgage and warehouse kind of run in tandem. And we're just seeing a lot of opportunities, there as people refinancing and purchases and I don't see that growing materially, but I think it's going to continue to run at a pretty good pace.

And lastly for me, on the fee side, we saw some really good strength on merchant debit card fees. Is that -- I mean, that's both sequential and year-over-year. Is that growth we've seen recently, is that surely volume-based or is there some other nuances that have also supported that growth over the last year or so?

Go ahead Cappy.

That's volume base. And we've seen an uptick in that and that's going to continue. I think Q2 will be stronger than Q1. I'm pretty, pretty sure it will. I mean, it's just strongly that we have a strong volume there. And we did renegotiate that contract a couple of years ago and we're seeing the benefits of that also somewhat.

Okay, sounds good. Thank you guys.

Thanks, Matt.

Okay, there are no more calls in the queue. We'll give it a few more minutes. A few more seconds. Since there are no further questions I want to remind everyone that the recording of the call will be available by 1 pm today, and will be posted on our Investor Relations page at gnty.com. Thank you for attending our call today. And it is now concluded. Have a good day.