AUSTIN — One bad quarter can sure set a bank's growth plan back, particularly if it's the only quarter the bank has to show for itself.
When Guaranty Financial Group Inc. of Austin was spun off from the timber concern Temple-Inland Inc. in December, Guaranty's executives talked excitedly about beefing up commercial lending, building branches in Texas and California, and perhaps even making acquisitions.
But its first quarter as a stand-alone company did not go so smoothly, and now the talk is of controlling costs, improving efficiency, and raising more capital.
On Tuesday the $16.4 billion-asset thrift company reported a $10 million first-quarter loss that it attributed to a spike in nonperforming loans, as well as the decline in the value of its securities portfolio.
It also said Tuesday that it was eliminating 135 jobs and considering a range of other money-saving initiatives, including reduced hiring, leaving open positions unfilled, cutting travel expenditures, and "rationalizing" the branch network.
"The continued decline in housing market conditions and liquidity in securities markets has demanded that we focus our short-term strategy on key elements of our business and align our organization to support these critical objectives," Kenneth Dubuque, Guaranty's president and chief executive officer, said Tuesday during a conference call with investors and analysts.
Its shares plunged 22% on the earnings news Tuesday, and its announcement Thursday morning that it planned to raise $300 million in a rights offering could not reverse the slide. The shares closed at $6.26 Thursday and are down about 60% since early February.
Company officials said they are in a quiet period and could not comment on the rights offering, which would bring Guaranty's ratio of tangible capital equity to tangible assets, 4.5% at March 31, to more than 6%, in line with the average for banks and thrifts its size.
But Guaranty may need the capital as a cushion against future loan losses. On March 31 it had nonperforming assets of $284 million, up 59% from three months earlier, which means chargeoffs are on the way. In northern and central California nearly half of its $227 million of residential construction loans are nonperforming.
To reduce its exposure to home builders, the company has shrunk that portfolio by about 33% since September, to $1.2 billion, and chief financial officer Ron Murff said in the conference call that it would continue scaling back.
Guaranty also said this week that it has moved 10 of its top lenders to new jobs to focus on loans that need special attention.
Still, there are bright spots. The company's regulator, the Office of Thrift Supervision, considers it well capitalized, and Terry McEvoy, an analyst with Oppenheimer & Co. in New York, said it has enviable core deposits, at $9.2 billion, and a coveted branch network in Texas and California.
"Underneath the mess is a well-run, valuable retail bank," Mr. McEvoy said in an interview Wednesday. "When the dust settles, the real value of the franchise will be reflected in the stock price. The question is when will that happen."
Mr. McEvoy does not cover Guaranty but follows banks in Texas and has been monitoring the company since its spinoff.
Investors and analysts have also been curious about Guaranty's mortgage-backed securities portfolio. Guaranty said that at the end of the first quarter its nonagency, mortgage-backed securities, both held to maturity and held for sale, had dropped in value: The held-for-maturity securities lost about 29%, or $650 million, of the fair value and the held-for-sale securities about 31%, or $420 million, of their fair value. Nonagency securities account for about 69% of the $5.35 billion-asset portfolio of mortgage-backed securities.
Mr. Murff said the company does not expect to lose money on the securities, which had rebounded slightly, to a $900 million unrealized loss, by April 23. "As we look at our securities, only $199 million of our $3.7 billion of nonagency securities by unpaid principal balance have subordination level below 10%," he said. "We continue to believe that our high subordination levels will result in no credit losses in our securities."
