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Guaranty Bancshares, Inc. (NASDAQ:GNTY)
Q3 2020 Earnings Call
Oct 19, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. Welcome to the Guaranty Bancshares Third Quarter 2020 Earnings Call. My name is Nana Branch [Phonetic], and I will be acting as your operator for today's call. [Operator Instructions] After their 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 company; Cappy Payne, Senior Executive Vice President and Chief Financial Officer; Shalene Jacobson, Executive Vice President and Chief Risk Officer.

To begin our call, I will now turn it over to our CEO, Ty Abston.

Ty Abston -- Chief Executive Officer

Thank you, Nana. I want to welcome everyone to this third quarter earnings call. This is our first earnings call, we've actually formally done. We as all of you know, our company is very transparent and we've enjoyed the individual calls we've done, but we decided with everything going on with COVID in this year, this was probably more efficient format to do our earnings releases and earnings calls we're going forward.

All of you saw our earnings release, we're very proud of the results of the company [Technical Issues] for Q3, and really just the resilience of our customers and what we're seeing in the Texas economy and overall results of the company. And I will turn it over to Cappy let him go through some of the recap of our results -- financial results and then we will have a short little presentation on some of the key factors and some, kind of, key metrics in the bank and then we'll open it up for Q&A. Cappy?

Cappy Payne -- Senior Executive Vice President and Chief Financial Officer

Alright. Thank you, Ty. Well, as Ty said and all of you have seen the press release that was released this morning. So what I thought, I would do, and I think all of us will do, is just really hit some highlights of certain sections of it. And then if you have any questions we can talk about more specifics down the road.

So I'll talk a little bit about the balance sheet first and then the income statement. Our balance sheet actually is very evenly comparable to last quarter, our total assets were down $4.5 million or 0.2% not a lot of movement obviously, total assets ended the quarter at $2.7 billion. Obviously, the biggest factor on the balance sheet is loans and deposits, our loans are actually up $1.2 million ended the quarter at $1.96 billion. We did have a pretty large loan $12 million loan facility payoff right before end of the quarter. This was on a property that was sold, so -- and that came out of multi-family category, you will see that in the detail of the loan -- in the loan section.

Our commercial and industrial loans are actually up $9 million, that's going to be reflective of our growth in our warehouse lending plan and that was about our lands, and that was about $11.5 million during the quarter. Our warehouse lending loans ended the quarter at $114 million, we average for Q3 right at $110 million and that's comparable or compared to average in Q2 of $65 million. So we've had good volume growth in warehouse lending just like mortgage and I'm sure most banks are reporting much of that same trend.

I'll talk a little bit about the yields on these loans here in a little bit, when I talk about the income statement. But before I leave the balance sheet just look over at -- in the liability side, deposits were down about $19 million, they total now $2.2 billion, that decrease really all came in interest bearing deposits more specifically in our time deposits, which actually decreased about $68.8 million. These were funds that were from a CD campaign that we started about 18-plus months ago, almost all of this runoff is from non-core customer base. These were CDs, that were pretty half priced not at the time we did it, but they are now have to decrease in interest rates, they were in the 3.75% to 3.95% range and those that are staying or giving the repriced down in the 0.6% to 0.75% range. So pretty good decrease in our cost of CDs. There is not much left in this category about $8 million left that should be repriced or do something within Q4, so that's pretty well run its course.

Our non-interest bearing account balances was, up $4.1 million and it's now 35% of our total deposits, so kind of trending there at the end of Q2 that was 34% of total deposits. And at the end of Q1 that was 26% -- DDA was 26% of total deposits. So a good trend there and growth in our core accounts and DDAs non-interest bearing accounts.

On the capital side, then you'll notice, we increased shareholders' equity about $8 million linked quarter, this cost came from our quarterly earnings of $10 million -- $10.1 million. We did pay a dividend of $2.2 million and by the way, we increased our dividend payout for the quarter by a $0.01 and we paid $0.20 for Q3, it makes our current dividend yield about 2.85%. We also announced so -- early in September that we reinstituted our buyback plan and we did buyback about 26,000 shares at an average cost of $24.30, so we saw some increase in that plan. So within the quarter, we did -- we ended the quarter at tangible book value of $21.07, that's up $0.80 for the quarter. And our tangible equity to tangible assets was right at 8.8%, so again a good increase in Q3.

So then on the income statement side, again as you saw the press release our stated earnings for Q3 were $10.1 million, that's up from Q2s $1.1 million, but there is a lot of noise in those numbers, so the big difference for that was -- probably the main difference was in the small release in our accumulated credit loss account of $300,000, compared to Q2 and we did a $12.1 million provision into the ACL.

So in the press release we did put a table of core earnings, I think this is very relevant, obviously with a lot of noise in the numbers, certainly an extraordinary events such as PPP. Our core earnings, we define as -- we define it as a pre-provision, pre-tax, pre extraordinary, mainly be in the PPP. This will get you to the strength of our income statement, I think and show you there's some -- a really, really good trends when you take out these extraordinary events. So, our core earnings were for Q3 $11.1 million, compared to Q2 $10.5 million and in Q1 $9.1 million. Again this is reflective of a strong NIM and a good lift in our non-interest income offset somewhat by an increase in operating expenses, all of which I'll talk just briefly about here in just a second.

Our stated NIM for Q3 was 3.61%, compared to Q2 of 3.78%, that's a 17 basis point decrease. But again there -- as a lot of noise with a lot of PPP fee income recognized in Q2 of just over $2 million. So if you look at our NIM and again we put this in the table in our press release. If you look at our NIM, our NIM margin net of PPP effects, we actually had an increase it was 3.73% in Q3, compared to Q2 of 3.71%, that's a 2 basis point increase. So we've been able to maintain that, I think we have good headwinds ahead of us to hold our NIM. I think there may be a slight decrease, once we see the effects of the PPP looking in Q4, but we think we can maintain that or something pretty close to it, even in Q4 with the headwinds that we have.

On our cost of interest bearing deposits, I think that's where you'll see a big change. In Q3 total cost of interest bearing deposits, as stated in the press release was 0.63%, compared to Q2 of 0.83%, so that's a 20 basis point decrease. All of this on average balance of interest bearing deposits of about $1.5 billion. So again that's going to be reflective of us been able to change rates -- decrease rates and on time deposit CDs and even on our non-interest bearing as market conditions allow and get more in line with peer. As I said a while ago, we're 35% in DDA accounts, so when you look at our total cost of funds factoring in our DDA, they're down at 0.41% and that's compared to 0.54% in Q2. So again, good, good opportunity there to decrease our cost of funds as rates allowed.

And then if you look at the yield net of PPP, again is lot of noise, so I try to be consistent with that in Q4 our yield -- our loan yield was 4.9% in Q3, compared to 5.03% in Q2, that's a decrease of 13 basis points. I think, we stated earlier in our Q2 press release that our total fees charged to the SBA were right at $8 million, I think as is panning out, it's going to be close to 50% of that in 2020 will be recognized an 50% a bit over the balance in 2021 has a lot to do depends on when SBA process is there forgiveness forms and then -- and actually pays us, but and there's going to be a little bit of leeway in there, but that's going to be pretty close around 50% of that in this year and 50% next year.

And looking at the non-interest income side. Non-interest income increased $1.7 million or 33% linked quarter, primarily driven by our mortgage and our SBA gain on sale of loans and our mortgage and warehouse lending fee income, both of those -- all those categories were strong. Really, we're really good in Q2 and then even better in Q3. Our mortgage volume has increased 30% linked quarter and that was on top of in Q2 increasing 75%. So if you look year-over-year, we're up about 175% in mortgage volume and still going strong by the way and I'm pretty sure most banks are reporting the same trend. Actually our -- in Q3 service charge income was also up, we did give some relief of in-service charge income in Q2, so that's beginning to trend back up, not quite to the level if it was pre-COVID, but and I don't know that [Technical Issues] think it will quite get to that level, but it -- we do -- as we'd see an increase there and we did.

So looking at our expenses, our non-interest expense. Our operating expenses increased $1.6 million as the lower 10% linked quarter. Two things, really come stand out in that regard; in Q2, we slowed down our incentive comp accruals, because their earnings were down. We've sensed ramp that back up in Q3 with improved earnings. So the difference in linked quarter is an additional $610,000 in non-comp accrual in the expense section, when you come compare in linked quarter.

And then another big factor in Q2, we -- that's when we booked the majority of the PPP loans that was about, I think, we've booked about $208 million of the $209 million, so as almost all of them. We did defer our origination cost of about $860,000 in Q2. So again looking, when you do -- when you're looking at the variance in the linked quarter those two factors alone make up about $1.5 million of the $1.6 million increase in expenses.

I think there is, all in all, there is probably about $300,000 in extraordinary expenses related to that and different things in the total expense stated of $16.7 million. So I think really our expense run rate is going to be more in the $16 million close to $16.5 million per quarter, which is about a $66 million run rate in expenses looking forward for the next four quarters.

Then lastly, I'll just touch on our efficiency ratio, again the numbers are stated in the report, but I call your attention to the adjusted for the PPP of that, which gives us -- gets some of that noise again out of it both on expense and income side. And in Q3, our efficiency ratio net of PPP was 60.22%, compared to linked quarter in Q2 of 62% and then Q1 of 64%. So again we have some really good trends on the income statement that we're proud to report in this quarter.

So that's all -- that's the highlights I had, so I'll turn it back over to Ty.

Ty Abston -- Chief Executive Officer

Thank you, Cappy. So I'm going to hit couple of highlights related to COVID-19, specifically just our response deferrals in the PPP program that everyone knows about. First, I want to say just how proud we are the whole team and how everyone responded to this unusual event and all banks roll that way with their teams around the country, I mean, that it was obviously a very unprecedented demand in some of our responses and things we had to put in place immediately were unprecedented, but our whole team and our Board just really responded well and it was really something to see.

We have -- currently have the majority of employees back at our locations. We have currently 75 to 100 employees that are continuing to work with only part -- part of that group of people, who are at risk -- in at risk categories. But who are working remotely, but also part of that is just to contingency groups that we've [Technical Issues] departments that we have offset. Just in case we had an outbreak, we could rotate staffs back in some of these operating departments. All of our lobbies are reopened and but we do require mask to customers and employees, we'd probably would be seeing that or into '21 as a best practice.

But we are also seeing real improvements in the adoption of our technology channels in digital banking channels from our customers. We were really -- this last year benefited from some of the prior investments we've made in digital banking and technology, not only with our customers and just the channel has been able to bank with us, loan deposit side remotely. But also with our employees and our staff internally on how we could work and interact with each other remotely as well.

Just a quick update on the deferral program, when all this started and set in March, we had two programs we come up, we rolled out. We had a 90-day deferral program and then there was a principal interest 90-day deferral, then we had a six month interest only modification program. Neither one of these programs are means tested, we offer those to anyone, who requested them we had him just a lot of an affidavit that were impacted by COVID. When we started out in June, we had $247 million on the principal and interest 90-day deferral program, we're down to $5 million, about 20 loans. Actually as of October 15, we are down to $3.7 million, so most of those have went back on contract.

We have other [Technical Issues] three month P&I deferral, we have eight loans that have moved over to a six month interest-only modification; seven of those will not be caveat in the CARES Acts, and those are all seven of the eight are hospitality related. None of the three-month P&I deferrals have asked for a second or received a second P&I deferral involved rest of those went back on contract.

Then we had right at a $183 million in interest-only modifications end of the Q2, that's currently $114 million right at 140 loans. That most of those will roll out in Q4, and we anticipate the majority of those going back on contract. PPP, as Cappy mentioned, we did around right at $210 million, I will say it was almost 2,000 loans, I think 1,100 of those are $150,000 [Phonetic], so we're starting to process some of those applications for expedited forgiveness.

Just specifically in the portfolio-related impacted sectors. The restaurant sector, we currently have right at $34 million in the restaurant sector. We have two customers that are make up right at one-third of that total. These customers both their operations have actually weather this COVID pretty. And they also offer strong gearing to our support. So really as those two long-term customers have right at $10 million, we're about $25 million, the right exposure to restaurants that makes up that is 87 loans was $350,000 average, so very granular portfolio related to specific restaurants and we've went through that whole sector and really just don't see a lot of individual exposure in that -- the remaining sector restaurant.

Non-SBA hospitality is $69 million that an -- with an average LTV of 56% as an average balance of $2.8 million, 25 loans. Again it's we -- are all of our portfolio it is in the mid-tier hospitality sector. So by and large they've rebounded pretty substantially with where they were before. The hospitality on the higher end is obviously been much more directly impacted, but we're seeing some, that are continuing that spreads in our hospitality portfolio. but overall been pretty, pretty pleased and -- with how they've rebounded and where their breakeven occupancy is.

And then retail, just in retail commercial real estate, we have $58 million specifically that -- but loan to value in those 51%, again we've been through that portfolio pretty carefully and are really comfortable with where we are with overall portfolio and LTV in retail. So those are the key sectors that are directly related to impact from COVID. I think, I mentioned in Q1 or Q2 calls that we did a deep dive in the first quarter every loan over $500,000 in the whole bank and really, kind of, use that as the basis for how we've really studied the portfolio and impact of how COVID would have on the portfolio. And again we've been very pleased with overall that -- how our customers will weather this and just the overall Texas economy how it seems to weather this and started to rebound.

So with that I'm going to turn it over to Shalene Jacobson, she is going to go over some of the specifics in the lending area.

Shalene A. Jacobson -- Executive Vice President and Chief Risk Officer

Thank you, Ty. With respect to our credit quality and allowance provisions. Our non-performing assets to gross loans have remained relatively steady at 0.72% for the third quarter, compared to 0.76% in Q2. Our non-performing assets consist of non-accrual loans, OREO and repossessed assets. The slight decline during the quarter resulted from payoffs or in one case return to accrual of a few smaller dollar loans. A large portion of our non-performing assets, which is about $8.7 million.

Our loans to two borrowers that we've acquired from Westbound Bank back in 2018. Both of those borrowers are -- there is three loans, basically the borrowers are hotel properties and they are 75% SBA guaranteed and were problems prior to that COVID-19 outbreak. So we've had those loans conservatively reserved for quite some time now. One of those loans that has a principal balance of $4.75 million, we have a sales contract on -- that we expect to close in Q4, so we hope to have that resolved and done with. The other loan, we are working to resolve, but hopefully that will be done in early 2021 and most likely won't be resolved in Q4. And as those loans are resolved and we work through them, we don't expect any additional provision and minimal, if any charge-off amounts. Like I said, we've had those conservatively reserved for quite a while now.

Despite the challenges of COVID, net charge-off activity for 2020 has been good. We've experienced very little net charge-off activity with only $62,000 in net charge-offs in Q3 and $193,000 in net charge-offs year-to-date. With respect to our allowance for credit losses, we actually had a $300,000 reverse provision during the quarter, bringing our year-to-date provision expense to $13.2 million. The reason for our $300,000 reverse provision was, because we chose to leave the queue factor adjustments that we made in Q2, consistent during Q3.

In our CECL model we segment our portfolio primarily by call report code and by risk rate with different allocation factors assigned to each segment. And because our queue factors remain consistent with Q2. During Q3, the decrease in our estimated reserve was based primarily on principal balance decreases in our special mention risk rating segment, as well as principal balance declines in few of our call code segments that have higher allocation factors assigns them.

Our special mention loans are going to decrease from $34.4 million as of June 30 to $23.9 million as of September 30. Within our special mention risk rating segment, we had approximately $14 million in loans move out of the special mention segment and back to a past risk rating, after we further evaluated them during the quarter for the effects of COVID-19. Those borrowers were not nearly has impacted by COVID as we initially thought they might be, when this virus started and we rated them special mention back in April of 2020. So to conclude, our allowance for credit losses coverage is 1.72% of our total gross loans and 1.93% excluding PPP loans, as of third quarter end.

So that concludes our planned remarks for today's call. I'll turn it back over to Nana for questions.

Questions and Answers:

Operator

Thank you, Shalene. [Operator Instructions] Okay, and we have our first question from Brady Gailey with KBW. Brady, you can unmute your line and speak to the panel.

Brady Gailey -- Keefe, Bruyette & Woods -- Analyst

Great. Good morning. Can you guys hear me?

Ty Abston -- Chief Executive Officer

Yes, Brady.

Cappy Payne -- Senior Executive Vice President and Chief Financial Officer

Yes. Hey, Brady.

Brady Gailey -- Keefe, Bruyette & Woods -- Analyst

Alright. Well, it was going to see the net interest margin up a little bit once you exclude the noise from PPP. I mean, I know there is a lot of headwinds out there on spread income. But how do you think about the outlook for spread income and/or the net interest margin into next year?

Cappy Payne -- Senior Executive Vice President and Chief Financial Officer

Well, as I said, Brady, this is Cappy. As I said, Brady, we do think we've got a lot of headwinds on the PPP that should get all paid off and either reinvested in something else or either run out of the bank. We'll see how that unfolds. But we've got a lot of opportunity to maintain that, we're booking new loans today in the $4.75 million [Phonetic] range, so and we are tracking that. So if we can get our cost of funds, as I said while ago, we're down in the 40 basis points and headed a little lower that will -- that should decrease more in Q4, we can maintain that 3.65%, 3.70% range and that's what we're projecting again to look into 2021 that's going to be close to, we don't see a big drop off at all, Brady on our NIM.

Brady Gailey -- Keefe, Bruyette & Woods -- Analyst

Okay, great. And then on the provisioning side, you're obviously, kind of, close to zero provision this quarter actually low negative. And I think, I read in the slides you're not anticipating much of a provision need for next quarter in 4Q? But how do you think the provision looks next year, I know there's a lot of uncertainty with the virus and whatnot? But assuming if things slowly improve here in the economy. Would you expect to have any provisioning need next year in 2021?

Ty Abston -- Chief Executive Officer

Hi, Brady. This is Ty, let me grab that. The -- to answer the question directly, no we do not really at this point anticipate additional provisions required specific related to COVID or in changing [Technical Issues] the COVID related reserves into '21. But the reality is unless we start actually experiencing and seeing real losses, we're going to have to start releasing some of that in '21. So given where we are today, we don't see the need for additional reserves above and beyond the $13 million, $14 million we put in that are specifically related to COVID of this event in '21. That being said, if things change materially for the negative, then obviously that would change. But as we sit here today, we have not see the...

Brady Gailey -- Keefe, Bruyette & Woods -- Analyst

Okay. And then Ty, just finally on the buyback. I think, if you look in the first half of the year, you guys repurchased almost 5% of the company. And then that's slowed pretty dramatically in the third quarter. The stock is little higher than where you all have repurchased it in the past at least earlier this year. So how do you think about, how aggressive you will be on the buyback in the fourth quarter and in 2021?

Ty Abston -- Chief Executive Officer

So, Brady, we will not be as aggressive as we were in Q1 of this year, obviously. But that being said we continually update our models and how we are looking intrinsic value of this company and anywhere south of $30 to us just as we look to -- and our core earnings and intrinsic value of this company, it gets to be attractive to us. Obviously in the mid '20s is very attractive. So we will be less aggressive than we were with -- as the prices improving. But we're pretty active buyers not only corporately, but individually below $30 and so as we see opportunities that we think that's a good long-term use of capital.

Brady Gailey -- Keefe, Bruyette & Woods -- Analyst

Alright. Great, well, that's it from me. Thanks for the color and thanks for doing this call.

Ty Abston -- Chief Executive Officer

Sure.

Operator

Okay. Our next call -- our next question on the call will be Brad -- no we're going with sorry Matt Olney with Stephens. Matt, you can unmute your line and speak to the panel.

Matt Olney -- Stephens, Inc. -- Analyst

Okay, great.. Thanks, good morning everybody.

Cappy Payne -- Senior Executive Vice President and Chief Financial Officer

Hey, Matt.

Ty Abston -- Chief Executive Officer

Hi, Matt.

Matt Olney -- Stephens, Inc. -- Analyst

So it seems like the balance sheet is in pretty good shape and you feel good about the overall reserves right now. You've already moved on a few capital actions with the dividend and the buyback. So I guess the next thought would be M&A, I'm curious where you guys are as far as M&A discussions. It seems like we're on pause for a while. I'm just curious if there is more conversations now than they were a few months ago and your expectations for 2021?

Ty Abston -- Chief Executive Officer

Matt, this is Ty. I will say there is more -- there are more discussions happening today than obviously the word begin the year. We are looking at opportunities, that being said, like you said it's little hard right now to really wrap your head around the right way to approach that just from really understanding valuations and understanding other as, you know, balance sheets. But that being said, my sense is that as we get into '21, you're going to see more activity and ceremonies [Phonetic] as we get past this, because the need for scale really has never been more apparent. And so we're actively having conversations within the -- primarily in the key metro markets that we're in. But nothing specific at this point, but I think you're seeing more conversations go on and I think you will, as we keep moving. Yes, toward a more normal environment.

Matt Olney -- Stephens, Inc. -- Analyst

Okay, thanks for that Ty. And Ty can you just kind of reset expectations and just remind us, kind of, what the M&A parameters are for Guaranty and kind of what the sweet spot looks like for you guys?

Ty Abston -- Chief Executive Officer

So we're primarily looking in the DFW Central Texas, Houston region. We would like to stay in the $250 million to $750 million range, that's a pretty good sweet spot for us, as far as kind of what we're comfortable with. Not saying -- that's not saying we wouldn't do a larger transaction if it make sense. But that's kind of our primary target $250 million to $750 million. There are even in Northeast Texas, there are even some opportunities there probably. One thing we've seen through this is just the -- not only the value of core deposits in some of the smaller markets, but also you're starting to see more people actually relocate to some of the smaller markets and work with [Technical Issues] technology.

And so really the valuation on some of the smaller markets, I think are actually seeing the benefit from some of this, as people kind of move out of -- move away from some of the metro markets and so it's -- that's been an interesting change in model, this is just what we've seen in some of the smaller rural markets and how some of them are little more vibrant today than they were even a year ago just as people are reconsidering, kind of, where they're going to be long-term.

Matt Olney -- Stephens, Inc. -- Analyst

Okay. And then I guess on the fee side, I think you guys hit on a number of fees that wasn't asked about, but card fees, the other one card fees have been strong all year long. Any color on what's driving that strength and what's the outlook there?

Cappy Payne -- Senior Executive Vice President and Chief Financial Officer

Yes, Matt, let me take that one. I'd -- we did have a little bit of extraordinary event in that category every year in Q3 going forward is the anniversary date of our agreement with Mastercard, and we do get a bonus and we did have a bonus in Q3 of little under $200,000. So that piece is extraordinary, but we are seeing our volume increase in each month trending upward. So we do predict -- obviously predict the upward trend, but you will see each Q3 going forward an extraordinary, because of that event.

Matt Olney -- Stephens, Inc. -- Analyst

Got it. Okay, that's all from me. Thanks for hosting the call. Nice quarter.

Cappy Payne -- Senior Executive Vice President and Chief Financial Officer

Thank you, Matt.

Ty Abston -- Chief Executive Officer

Sure.

Operator

Okay. Our next call is from Brad Milsaps with Piper Sandler. Brad, you can unmute your line and speak to the panel.

Brad Milsaps -- Piper Sandler -- Analyst

Hey guys, good morning.

Ty Abston -- Chief Executive Officer

Hi, Brad.

Cappy Payne -- Senior Executive Vice President and Chief Financial Officer

Hi, Brad.

Brad Milsaps -- Piper Sandler -- Analyst

You guys have done a good job of addressing most everything. But maybe Ty, just bigger picture, you express quite a bit of confidence around credit, Shalene noted some maybe good resolution on those couple of loans that you got from Westbound. To the extent that losses do begin to show up? What does your crystal ball say in terms of timing? Do you think that's first quarter next year, second quarter, if at all. I mean, just kind of curious, kind of, bigger picture, kind of, how you're thinking about loss recognition known for you guys, but for banks in general, if at all?

Ty Abston -- Chief Executive Officer

Yes, Brad, I mean, I think a lot of that has to do with and it really depends on stimulus and whether we see stimulus at the end of the year and down the scale of that. But my sense is that the actual credit losses from all of this is going to be mid-to-end of '21. As you kind of work through everything and really get things back to normal and you really see the real damage, different sectors. And that being said, for the most part through all of this, we've been able to really look at every relationship and really we get a sense of what's going on with them. And again, we feel very comfortable, we did decide to take a conservative approach and put very aggressive reserves in Q2. And we felt like that was right thing to do, but that wasn't necessarily a direct response to exposures we saw in the portfolio.

And I think as we work through this, I think we'll see much less actual pure losses in our portfolio than we were actually put aside in reserves. So we did have a third-party firm gateway come in and do their external loan review this year and they've just completed that, we ask them to do a deep dive and look at all impacted sectors, really just getting portfolio and look at it across the board, not only just in impacted sector of COVID, but the whole portfolio and they were very complementary of what they saw and felt like our reserve very adequate and really had very little, they actually have a pretty severe stress, modeling -- model they run for a second downturn in '21 and even with that severe stress downturn of a second outbreak in '21, the exposures of that net model were much less than we put aside in overall reserve.

So our portfolio is very granular, it's underwritten carefully and we've always been very careful and individual sectors we get into and not getting ourselves [Indecipherable] and individual sectors. And so that's just like the way downturn. This was an event that all of that serves you well when your portfolio is in that position.

Brad Milsaps -- Piper Sandler -- Analyst

That's helpful. And then maybe just one follow-up for Cappy. Just on the margin, I think you mentioned new and renewed loan rates coming in around $4.75 million. Just curious how long do you think you guys can kind of continue to the hold the line there. And what's your willingness would be to drop low. And then the follow-up to that in terms of your loan portfolio, do you have a lot of loans that renewed in the middle part of the year or toward the end of the year or is it pretty equal, kind of, throughout the year as things come due? Just kind of curious if there is a big renewal period coming up?

Cappy Payne -- Senior Executive Vice President and Chief Financial Officer

No actually there is nothing real significant Brad, that would be seasonal. As far as the renewals are concerned, I think large part, you talked about the integrated -- maintaining that new and renewed rate. I mean, obviously, our growth has been a lot less than what we've done in the past. So that's probably going to be part of it. If we have a lot of funds to deploy, I have some of that -- as those -- that PPP money gets paid off by SBA, if it stays in the bank, we'll have funds to the -- funds resources to deploy. So maybe we do nudge that down a little bit to deploy those bonds.

But as we see it now, we're going to be in that range is not going to be dramatically lower do not anticipate even as we look forward into 2021. But it's going to depend on, again the resource we have the growth, and we're in a lot of good growth markets. As Ty talked about we're a DFW market, Houston, Austin, Metro markets. There is a lot of opportunities as we put originators, employer originator in those areas that -- their jobs is to do that and trying some business. So I think I think we'll have those funds to deploy and I think we will do that more so looking in 2021, when they are certainly hopefully, but things start settling down into a new norm.

Ty Abston -- Chief Executive Officer

Hey, Brad, I'll -- this is Ty. I had a little color to that, the $4.75 million is an average that where the new norm is at. But that being said, we're -- I mean, we're renewing commercial credits in the high 3s, low 4s, but the portfolio overall, I think is at $4.75 million. And as Cappy said, we're going to defend that. That being said, we're going to see that move down. But we've also aggressively moved our cost of funds down. So we do have floors on a large percentage of our commercial allowance, which is helpful. But when for the most part, we've stayed away from and plans stayed away from some of their extremely low rates, which we're seeing in a couple of markets, just concerned with, how that [Indecipherable] impacts need earnings, but long-term what that could mean to Bank and great start doing up with the direction. So we are being competitive in all of our markets and we will get into 3s and low 4s pretty routinely, but we're also being very sensitive to the ultimate impact and have a pricing model we use that really targets an ROE on an overall relationship and look at that to help guide us in making those decision.

Cappy Payne -- Senior Executive Vice President and Chief Financial Officer

And that $4.75 million, that's ex-out of warehouse lending and mortgage loan, loans held for sales, so that's something that -- and that's the current rate [Indecipherable] it that may decrease some, but that does not count warehouse lending in mortgage or PPP loans.

Brad Milsaps -- Piper Sandler -- Analyst

Great, thank you guys. I really appreciate it.

Ty Abston -- Chief Executive Officer

Sure.

Operator

Okay. There are no more questions in the queue. I'll give it a few seconds and see if we have any more questions coming in. Since there are no further questions, I will remind everyone that the recording of this call will be available by 1:00 p.m. today on our Investor Relations page at gnty.com.

[Operator Closing Remarks]

Duration: 44 minutes

Call participants:

Ty Abston -- Chief Executive Officer

Cappy Payne -- Senior Executive Vice President and Chief Financial Officer

Shalene A. Jacobson -- Executive Vice President and Chief Risk Officer

Brady Gailey -- Keefe, Bruyette & Woods -- Analyst

Matt Olney -- Stephens, Inc. -- Analyst

Brad Milsaps -- Piper Sandler -- Analyst

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