Now that Guaranty Bank in Austin no longer turns over most of its earnings to a corporate parent, the $16 billion-asset thrift will be able to reinvest in itself.
Before Temple-Inland Inc. of Austin spun off Guaranty two weeks ago, the thrift and its insurance company had contributed $461 million, or about 90% of their earnings, to its holding company over the past five years.
Now the decision about what to do with profits will be made by the thrift's management and its board, according to Kenneth Dubuque, its chief executive officer and president.
"This is an opportunity for us to grow and reinvest our own capital," Mr. Dubuque said in an interview last week. "We'll make the decisions about dividends. We'll make the decisions about share buybacks. We'll make the decision if we want to put it into growth."
His plans include further developing Guaranty's branch networks in Texas and California to generate more noninterest deposits and build fee income.
Still, Guaranty and its newly named parent company, Guaranty Financial Group Inc., have some challenges ahead. About half its loans are in real estate and construction, and that business has slowed in recent months. And even though it would like to build up its commercial and industrial loan portfolio, industry watchers said finding experienced lenders can be easier said than done, especially in fiercely competitive markets such as California and Texas.
Dan Bass, the managing director in the Houston office of Carson Medlin Co., said that Guaranty, now the second-largest publicly traded bank or thrift in Texas, is in position to use stock options to attract top talent.
However, "every bank in Texas is dealing with" competition for commercial lenders, he said. "And if they aren't going to grow through acquisition, then they need to do it through hiring to convert the balance sheet to more of a commercial bank balance sheet."
Mr. Dubuque said his company would consider acquisitions, though recent prices have been too high. When asked what would be a reasonable price, he replied, "Let me put it this way: Three or four times book ain't a reasonable price in our opinion."
Temple-Inland, mainly a manufacturer of paper products, announced early last year that it would spin off Guaranty Bank and Forestar Real Estate Group and sell 1.8 million acres of timberland, after it was disclosed that the billionaire investor Carl Icahn had acquired a large stake in the company and advocated breaking it up.
Guaranty became part of Temple-Inland in 1988 after three troubled savings institutions were consolidated in the wake of the savings and loan crisis. Under Temple-Inland, Guaranty was not managed for growth. Instead, the parent's strategy was for the thrift to provide stable cash flow.
"In the past we had one shareholder, Temple-Inland, and they managed it for low risk and consistent stream of earnings," Mr. Dubuque said. "It was really a cash-flow issue for them. We grew, and we added to those earnings, but we did it to meet their needs, rather than as a public company."
One of Mr. Dubuque's goals is to increase the percentage of checking account deposits, currently under 20% of the thrift's total, to about 30% within the next five years. It will do so by requiring small-business borrowers to open checking accounts with debit cards, which also produce fee income.
Guaranty has 102 Texas branches, mostly in metropolitan markets, and 56 California branches, with a significant network around the Central Valley and the Inland Empire. It has added almost 20 since the beginning of 2006 and plans to add about 20 more, though Mr. Dubuque said that the company could scale back its plans if the economy continues to slow.
Markets where the thrift plans to continue building include the major Texas cities — San Antonio, Houston, Dallas, Fort Worth, and Austin — as well as the San Francisco area and Los Angeles, Orange, and San Bernardino counties.
Brett Rabatin, a senior research analyst with First Horizon National Corp.'s FTN Midwest Securities Corp., said generating more small-business loans could be Guaranty's biggest challenge.
"Small business tends to be where everyone is gravitating to," he said. "Unfortunately, you don't just turn on that spigot and it is there next quarter. That business takes time to show up, because it is more relationship-driven."
Still, the branches in California and Texas, two states where population growth is expected to outpace that of the rest of the country, put Guaranty in the right place for long-term growth, Mr. Rabatin said.
Guaranty officially went public Dec. 31, and its shares opened at $14.45. Since then they have dropped 10% and now trade at about half of their tangible book value.
No analysts have picked up coverage, but some, like Mr. Rabatin, are watching Guaranty closely.
He said investors might be a little skittish right now because, like many other banks and thrifts, Guaranty has experienced a significant uptick in nonperforming loans. Between June 30 and Sept. 30 its ratio of nonperformers to total loans more than quadrupled, to 1.53%, according to Federal Deposit Insurance Corp. data.
"Everyone is nervous about credit quality, and they obviously have some construction loans, which is the asset class people are focused on," Mr. Rabatin said.
Guaranty also could be a victim of bad timing; investors have become bearish on financial services stocks in general. Its public offering also might have gone unnoticed in some circles, because it occurred during the holiday season.
Mr. Dubuque said he is expecting some erratic behavior from the stock price over the next several months, as Temple-Inland investors continue to divest their holdings in Guaranty.
"We are going to see a lot of volatility as shareholders want out," he said.
Mr. Rabatin said that if asset-quality problems get worse and Guaranty needs a capital infusion, one option would be to sell a portion of its highly attractive branch network.
In fact, Mr. Bass said the branch network makes Guaranty an attractive takeover target for several buyers, in particular a foreign company that could use it to enter Texas and California.
"It would be very valuable if they sold, and that should help their stock price, because some people will look at it like it is a takeout play," he said.
Mr. Dubuque said that at this point Guaranty is not being positioned for a sale.
"Are we going to be Citibank or Wells Fargo? No," he said. "But could we be a good, solid regional player."
