Guaranty Bancshares, Inc.

Good morning and welcome to Guaranteed Bank Share's third quarter 2022 earnings call. My name is Nona Branch and I will be your operator for today's call. This call is being recorded. After the 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. Kathy Payne, Senior Executive Vice President and Chief Financial Officer of the company. Shalene Jacobson, Executive Vice President and Chief Financial Officer of the bank. To begin our call, I will now turn it over to our CEO, Ty Abston.

Thank you, Nona. Good morning, everyone. Welcome to our third quarter call. As reported in our press release, our company did experience strong growth for the quarter and good financial results. outlined that we, like everyone, are anticipating a downturn in the economy starting in Q4 and into 23, but we do think Texas will remain resilient in this downturn, and our company, we think, is also well-positioned for any economic downturn we see going forward. We do have several slides to kind of walk through, and then at a high level, we'll kind of detail some of the main areas of the company, and then we'll open it up to Q&A. Kathy?

Okay. Thank you, Ty. I'll hit some of the highlights of both the balance sheet and the income statement here pretty quickly. Total assets at the end of Q3 were 3.39 billion. That's up 109 million or 3% for the quarter, and it's up 304 million or 10% year to date. Then diving into a little bit of that on the asset side, total loans were up 144 million at 6.8% for the quarter, and that's ex-PPP and warehouse lending. And for the year, there were 439 million increase or 24% year to date. And again, ex-PPP and warehouse lending. We do have a chart in earnings released. You can tell that 400 plus million, about 200 million came in increase in CRE, and about 85 million was an increase in the C and D bucket, construction and development. Those are the bigger drivers of our growth for this year. Each of our four regions are seeing growth this year. And our Central Texas region was leading that growth with almost 50% of the year-to-date growth. And looking at our new loan originations, they were, again, strong for the quarter. They were higher in Q3 than they were in Q2 and Q1. And then looking at our payoffs and paydowns, they were pretty steady in Q3 versus Q2. Pipelines are beginning to slow down, as Ty's already talked about, and we'll talk a little bit more about that in detail in the next slide or two. And looking at the securities portfolio, the main event was a decrease in our treasuries, short-term treasuries that matured during the quarter. Again, $80 million. We've got about $120 million that will mature before year-end in the Treasury category. We still have about 2% yield on that remaining $830 million bond portfolio, and the duration still is right at three and a half. Along those lines, we do have some federal home loan bank advances maturing that'll kind of match some of those deposit, some of those treasuries that are maturing. I've got 140 million in federal home loan bank advances that will mature. We'll roll some of those into 2023, but not all of them. Then looking at our deposits, they were up 11 million for the quarter. and up 120 million year to date. That's 4.5%. And as you can see, almost all that increase was in the DDA, which continues to represent 40% of our total deposits, which they pretty well have averaged all this year. Public fund money is just 10% of our deposits. They were actually down during the quarter, about 9 million. So our retail or all other deposits are actually up about 20 million for the quarter. Our shareholder equity did increase about 6 million from the linked quarter. Earnings were 10.9 million, offset by a decrease in our AOCI of 2.4 million from linked quarter. We did pay dividends of 22 cents. So that's 2.2 million. And then we did buy back a little bit of stock, about $700,000 worth. We repurchased a little over 19,000 shares. during the quarter our cash dividend is on track to pay out 88 cents for the year which is a which is right at a 25 payout of earnings uh based on current price that's about a 2.5 percent yield and it's a 10 increase over our dividends we paid in 2021. And looking at the income statement, our Q3 net earnings were 10.9%. As I said, that was 92 cents per share. Very similar, but actually a little bit better than Q2 and Q1 of this year. Basic earnings per share year to date are right at $2.71 compared to last year's $2.55. Again, that is for the first three quarters of year to date. As in prior quarters, we do include a table in the earnings release that describes our net core earnings. It was 13.8 million in Q3 and has shown an increase in each of the last five quarters. And again, we define core earnings as pre-tax, pre-provision, and pre-PPP effects. Our return on average assets on those net earnings was 1.3 percent and return on average equity was 14.87 percent both strong results for the quarter and very comparable to each of the first two quarters of this year our stated net interest margin fully tax equivalent was 3.59 percent that's down two basis points from leaked linked quarter uh which the results of it were 3.61 percent And it's up from same quarter last year, 19 basis points. Since PPP activity is pretty well wound down, especially in Q3, it did not have any effect on our net interest margin in this quarter. Our loan yield on that $2.2 billion loan book did increase 26 basis points linked quarter. That is now 4.96%. That was somewhat offset, though, by the same period, the cost of our interest-bearing deposits increasing 21 basis points to a total of 59 basis points for this quarter compared to a length quarter of 38 basis points. But as I said, we have 40% of our deposits in DDA. So that does bring down our total cost of deposits. It is 35, as showed, is 35 basis points from the quarter. And that's up from Q2 of 23 basis points. We have had our interest-bearing deposit beta is right at 15%. we are projecting that to increase on future rate hikes and we're we're projecting that to be closer to 25 near term because of loan growth we did do a provision of a quarter we'll talk a little bit more about that when chalene talks about the acl then looking at our non-interest income It did decrease 278,000 from linked quarter, really three main reasons. The biggest being gain on sale of loans decreased 544,000, that's 60%. Obviously volumes are down, we know because of higher mortgage rates, but I did talk in last earnings release, we're basically restructuring the leadership of our mortgage department that's been going on and is now getting geared back up. And we also restructured and leadership our SBA department. So both of those departments should have higher volumes going forward, certainly than we saw in Q3. The second reason our debit card income was down, we did record an annual bonus payment in Q2 of 274,000. So that made the quarter-on-quarter non-comparable. Year-over-year, though, we are showing an increase in our debit card income of about 7%. That's going to be 400,000 to 500,000 increase in income, top-line revenue debit card, and that's due to increased volume. Then to offset those first two reasons, we did have a gain on sale of an airplane asset for a gain of just under $900,000 recorded this quarter. So then looking at our expenses, non-interest expense, it did show an increase of $543,000. That's 2.8% from linked quarter, primarily due to a write-down that we did during the quarter of $487,000 in an SBA receivable that we described in the earnings release that we discovered during the quarter. So guidance on our non-interest expense, For 2022, we'll probably have a total expense of 78.5 million. That's still within our 2.5% of asset metric. Probably going to be about 2.43%. That's a 9.5% increase over 2021 expenses. And then projecting 2023, We're looking at anywhere from around $83 to $84 million, which, again, will be within our 2.5% of average assets and show about a 7% increase over 2022 expenses. So I'll turn it over to Shalene, and she'll talk about the next slide.