Guaranty Bancshares, Inc.

Good morning. Welcome to Guaranty Bank Shares third quarter 2021 earnings call. My name is Nona Branch and I will be your operator for today's call. I want to remind everyone that this call is being recorded. After our prepared remarks, there will be a Q&A session. 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. Shalane Jacobson, Executive Vice President and Chief Risk Officer. To begin our call, I will now turn it over to our CEO, Ty Abston.

Thank you, Nona. Good morning, everyone. I, too, want to welcome you to Guaranty Bank Share's third quarter earnings call. As all of you or some of you, I'm sure, probably read our press release, we had a good quarter, one we're very proud of. We continue to be very optimistic about the strength we're seeing in the Texas economy and the strength we're seeing in our bank and our footprint and our business model. We are starting to plan for 2022 and have that same confidence as we go into next year and feel like that our state is set up to do really well and our bank in particular with our footprint throughout the state is set up to do really well. I'll turn it over to Kathy who's going to kind of go over some of the highlights and then we'll go through some of the things we want to present to you and then do a Q&A at the end. Kathy?

Thank you, Tom. If y'all are joining us by Zoom, you'll see our quarterly highlights on the screen. Let me just recap some of the main points, both on the balance sheet and the income statement. We did finish Q3 with total assets of $2.97 billion. A slight increase of about $35 million for the quarter. And then in comparing where we were a year ago, assets are up about 306 million year over year. So that's about 11 and a half percent increase. Our average cash and cash equivalents, which mainly is fed funds, did decline this quarter, approximately 15 million. Cash continues to remain elevated. We've talked about this in prior quarters. And as compared to, I guess, our historic normal levels, it still remains elevated and probably a drag on our NIM, our net interest margin of approximately 20, 22 basis points. So I think that will continue to stay elevated for a while and then probably return something closer to our historic levels. Gross loans then, a net of PPP, And our loans held for sale increased 132.8 million for the quarter, a really nice increase. And that's also 168.6 million year to date. So for for three quarters, that's that's a 10% increase annualized. That's if you annualize all those three quarters, about a 13, 14% increase with really Q3 being a a big driver of that with that $133 million increase. Shalane will talk about some of the PPP activity. Of course, all this is net of PPP when you look at the total loan loans outstanding. Our loan growth, and I think we talked about this in the earnings release, our loan growth is internally generated. It's coming mainly from our Central Texas market, as well as our Houston MSA, and even some of the markets in the DFW are really showing nice increases. But actually, if you look at it, and we've talked about this in prior quarters, We do break down our markets into four regions, and all four of our regions showed an increase in loan balances for Q3. We continue to have a strong pipeline, and we'll talk a little bit about that. And we did see the payoffs and paydowns, which have been pretty elevated over the last couple of quarters, decrease a little bit in Q3. So that was good to show that and part of that net growth that we're talking about. We did have a shift in average earning assets, showed an increase in loans, obviously with this growth, and even an increase in securities during the quarter. And then a correlating decrease in our fed funds, which obviously helped maintain our net interest margin. As well as showing, I think we'll talk about it in a little bit, but we showed a decrease again in our cost of funds. In the security section, though, you'll see that we moved some of our securities into held for sale, held to maturity, out of available for sale. And that was due really just to capture some of that unrealized gain, just to move for, I guess, for accounting purposes more than anything. Mainly, all those were our municipal securities. Then on the liability side, our deposit showed another increase for the quarter, about 30 million. We're now showing year-to-date increase in deposits of just right at 277 million for the three quarters. About 195 million of that is in non-interest bearing. So that's a good portion of that growth is really onboarding new relationship accounts in our DDAs. That's about 70% of our growth coming in the DDA non-interest bearing checking account balances. And really, we continue to have an elevated balance of those in our total deposit. So here today, they've averaged about 36% of our total deposits, that being in our non-interest bearing section. Then looking at the capital account, our shareholder's equity was $297 million at quarter end. That's a growth of about $9.7 million for the quarter and $24.8 million year to date. Again, we did not buy back any stock during the quarter. And we again paid a 20 cent dividend to shareholders. So annualized out the dividend is 80 cents. That's paying out about 24% of our earnings per share. And at current stock price, that's about a 2.2% yield. And looking at the income statement, as Ty's already mentioned, we had another really good quarter in our earnings. Our net earnings for Q3 were $9.3 million. That's $0.77 per earnings per basic share or $0.76 earnings per share fully diluted. And that's compared to link quarter net earnings were $10.4 million or $0.87 per basic share. For Q3, that gets us to a return on average assets of 1.24%, and our return on average equity, 12.44%. So again, this quarter, as I think we've done in the past, I don't know, five or six quarters, we provide some additional tables in our earnings release. So you can see how we highlight our net core earnings, which we define in our press release as being our earnings before any credit provision or release, which we've done the last couple of quarters and before income tax. And then also before So our net core earnings for the quarter were 9.7 million, that's 87 cents earnings per basic share. And that's compared to link quarter of 9.8 million, which is also 81 cents per basic share. Our margin was very steady for the quarter. It came in at 3.40% for Q3 compared to 3.44% for Q2. And if you X out PPP, which again, we provide a table in the earnings release, our NIM was 3.39% for Q3 compared to 3.38% for Q2. So really just very steady in the NIM. Our loan yields when you X out PPP did decline. They were showing 4.73% in Q3 compared to 4.82% in Q2. I guess the offset to that or the positive note is the increase in our loan balances is that loan balance increased obviously our interest income having come out of fed funds at earning a much lower yield. Then our cost of interest bearing deposits decreased again this quarter. They were 33 basis points in Q3, that's down four basis points from Q2. Then when we add back or add in or include our non-interest bearing balances, our total cost of deposits was 22 basis points for Q3 compared to 24 basis points in Q2. And if you look back a year ago in Q3 of 2020, that figure was 41 basis points. We've had a good opportunity to maintain a level of cost of deposits that are appropriate and pretty close to peer. Looking at our non-interest income, we did show an increase in Q3 of $479,000. That's 8%. Biggest part of that driver was a gain on sale of loans that was up 515,000. And that was both increase in mortgage volume and SBA activity from the linked quarter. SBA did add about two thirds of that increase and mortgage was the other third. So mortgage activity, which was significantly higher in 2020, is down some about 12% year over year. So we obviously we did project the decrease in mortgage activity and it's been 12% is I think we had about a 15% decrease projection. So we're in line with about what we thought. And our service charge income volume you'll see in there is really kind of returned to a pre-pandemic level. And with adding the accounts and the relationships I talked about on our DDA, I think that trend will certainly be maintained and probably increasing from here. You'll notice in the release the detail, our debit card income was less. Actually, our debit card volume did increase during the quarter slightly, but in Q2, we had an extraordinary annual bonus paid from our Visa MasterCard contract of $250,000. So it did show a decrease in total income for Q3 compared to Q2, but that was the reason. Then on our non-interest expenses, they did increase 1.6 million. We detail in the press release just under 800,000 that came in salary and benefits. I think we will see an increase in salary or this level increase in salary over the future quarters, no doubt, as pay scales are being adjusted somewhat. We did increase, we talked about in the press release, some of our benefits, health insurance payments due to some higher claims than we had projected, and then also benefits of payroll tax and 401k payments related to our ICOMP that we paid this quarter that was related to the first half of the year. We did make a note in there, we did have a non-recurring transaction of a termination fee on Payment of $434,000 to unwind two of the two swaps that we had on our trust preferred. This termination fee actually charges about $0.03 per share to the quarter earnings, and it will save us interest immediately going forward. right at $200,000 a year in decreased earnings on those trust preferreds or the swaps related to those trust preferreds for the next two and a half years. So I do think our annual expense run rate will be up some, probably in the 74 million or 75 million per year annual expense run rate. And then our efficiency ratio showing 64% of the X out PPP is 66 and a half percent. We we do maintain our 22 efficiency ratio goal of right in the 62% range. So with that, I'll turn it over to Shalane and she'll talk about COVID response.