Guaranty Bancshares, Inc.

good morning and welcome to guarantee bank shares fourth 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 marks there will be a q a session our host for today's call will be ty abstin chairman and chief executive officer of the company Kathy Payne, Senior Executive Vice President and Chief Financial Officer of the company. Shalane 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. And again, welcome to our fourth quarter earnings call for Guaranteed Bank Shares. We did have a year that we're very proud of. Our quarter did have some noise in it that we're going to go over and explain in our presentation. And then we're going to talk a little bit about our projections for 2023. We'll get into our slide deck and go through that, and then we'll open it up for Q&A. So, Kathy, why don't you start that? Okay.

Thank you, Ty. Let's briefly hit some of the highlights of the balance sheet first, then I'll go over the income statement. We do have some of those highlights on the slide deck here if you're looking on your PC. Our total assets for the year ended at $3.4 billion. That is down for the quarter, about $39 million. But it is up for the year, $265 million. A lot of that came from an increase in loans. We had a really good year in loan growth. We were up for the quarter, 112 million. This is ex PPP and warehouse lending. And for the year, we were up 553 million, about 30%. And looking at some of the details of that, we did have growth in all four of our regions. So we were proud of that and do have emphasis in activity in all four of those regions. You can see in the earnings release, we do list a loan composition chart. And of course, most of that loan growth is real estate based. And again, you can see the components being CRE, construction, development, and so forth. On the bond portfolio, it did show a decrease during the quarter. Like we told you last earnings release, we had about $120 million in Treasuries, short-term Treasuries that matured. They were at a pretty low rate, so actually the yield on the portfolio increased, but the volume was down about $133 million for the quarter. Year to date, though, our year-end balances were up about $175 million year-over-year in the bond portfolio. Then looking at the liability side, probably the notable change obviously is what people are looking at is in deposits. We did have a deposit decrease during the quarter of 109 million, about 89 million of that. The largest majority was in non-interest bearing DDA balances and about 20 million in interest bearing balances. some of that was just uh we knew some of that was coming there's just a restructuring and just a uh positioning of some funds that got invested elsewhere i'll talk a little bit about the some of the costs related to that but kind of a a comment on that we normally see public fund money increase during the fourth quarter we did see an increase just not as much as normal And probably that's indicative of what we're seeing a lot of our customers at least being faced with is alternative rates on other investments. Public fund money is most of it's contracted at a certain rate. And a lot of what they're seeing was a lot higher than what our contractor rate is. So some of that money went elsewhere. Again, our public fund money is not a large part of our deposits, about 11%. 300 million over on our 2.7 billion in total deposits. But I think that's just kind of just to show you what we're all seeing in the banking world as far as competition. Our year to date, our deposits were up about 10 million. And our DDA balances actually were up 38 million in total year over year. So our non-interest bearing balances still account for 39% of our total deposits, which again helps in that funding cost. Our federal home loan bank borrowings did increase for the quarter. That's going to be driven mainly by that loan growth and some deposit decrease during fourth quarter. And at year end, they were 290 million in total fundings from Federal Honolulu Bank. Our shareholder equity increased, obviously, in the quarter due to earnings offset by the dividend that we did pay. We paid another 22-cent cash dividend. We also did have a slight improvement in our accumulated other comprehensive income, which is the unrealized loss in our bond portfolio. So our tangible common equity ended the year at a ratio of 7.87%, down a little bit during the year due to that significant increase in the unrealized loss in our bond portfolio, the accumulated other comprehensive income. That 22 cent dividend that we paid during the quarter made a total of 88 cents for the year. That's up 10% year over year. And looking back at our history, we've got about a 30-plus year history of increasing annual dividend. I think all but two years of those 30-plus years, we did not increase it. Every other year, we increase it. Those two years, we just left them flat. We did not decrease them, but we didn't increase them. And that $0.88 dividend based on current yield is about a – based on current price is about a 2.5% yield. on that return. Then looking over at the income statement, you can see our fourth quarter net earnings were 8 million, which was down from the previous three quarters. That 8 million is 67 cents per share. um that the decrease or the significant event during the quarter was related to a provision that we made of 2.8 million due to our cecil modeling chalene will give you a little more detail on that in just a minute so i'll not talk the detail on it but because of that that event if you if you look at our pre-provision, pre-tax, pre-PPP activity, which is our net core earnings. We've been putting this chart in there each quarter for the last two years. And you see that our quarterly earnings, pre-provision, pre-tax were 12.6 million for the quarter. Our year to date was 50.2 million. And that compares from previous year fourth quarter of 10 million and previous year 2021 of 39 million so year over year that's about 11.2 million dollar increase which is 29 percent so then looking at our year-to-date return on average assets and again on net earnings were 1.24 stated earnings 1.24 percent for 2022 for the year compared to 1.36 percent for 2021 Again, a significant factor in that change would be the difference in the 2022 provision that we made versus the 2021 release that we did, which those two components were a swing of about $3.9 million. Return on average equity for the year was 13.76% compared to 13.72% in 2021. Again, we had really good earnings. As Ty said, we're proud of the year we did. And both these two years, 2022 and 2021, the net earnings were significantly higher than previous years. So then looking at the components, I think what everyone's focused on is our net interest margin. In Q4, it did show a decrease of two basis points. It was 3.57%. down from 3.59 in the linked quarter, but up from the same quarter last year of 18 basis points. Loan yields are increasing nicely as rates are rising, and we talk about that in the earnings release. Shalene, again, talks in more detail on that and what rates are currently doing. But I think probably more of the focused attention is on our cost of interest-bearing deposits, probably. Something we look at all the time and made some decisions on this quarter that were not exactly what we had projected. I think as many banks, though, saw, we did see that outflow of deposits. And to remain competitive, we increased our cost of interest-bearing deposits for the quarter more than we had projected that we thought we were going to do prior to the quarter. The cost of interest bearing deposits for the quarter were 108 basis points. In Q4, that's up from 59 basis points in Q3, significant increase. But those are some decisions we made to remain competitive in the various markets that we're in. And we're seeing all sorts of competition, both in small bank and larger banks, and then to protect our existing core deposit base. And I think we put it in the press release, our interest bearing cost of deposits beta increased 40% during the quarter, which is significantly higher because we made those decisions, both in increasing some CD rates and our money market rates more than what we had projected. I guess a note to point out, when using our non-interest bearing balances, the total cost of funds is 64 basis points again we we put that in the earnings release that's up from 35 basis points linked quarters so the so that'd make a total deposit beta increase of 23 and looking at non-interest income uh it it still remains lower than what we saw in 2021 in the first half of 2022 um if you look out the if you take out the extraordinary items q3 and q4 were very consistent with each other i think we're going to continue to have challenges in our non-interest income category back certainly last year when the loan the mortgage rates were lower we had a lot of a lot more gain on sale if we we look at year over year our gain on sale in 22 was uh 55% lower than it was in 21. That's about a $3 million swing. So we're projecting the lower volume going forward and mortgage activity and related fee income as we look at 2023. We did have some positive trends other than that on a non-interest income though. The debit card volume continues to increase and show good volumes. And our fiduciary income is pretty stable even in an unsteady stock market that we've experienced in the last half of 2022. On the expense side, we did have a little bit of elevated expenses in Q4, which sometimes traditionally we do. Each year, we give raises in the fourth quarter, starting in the first part of the fourth quarter in October, as we did this year when they're warranted. They were generally higher. The raises were generally higher this year than what we've seen in prior years, obviously due to inflation and really just the competitive pressures that we're seeing in some staff positions. Our healthcare costs this year, as we've told you in prior quarters, up a little bit this year over last year. So we had a little bit of a catch up in Q4 to be properly funded for it. And then the other category that you'll notice, and there's our software, our technology. We're constantly looking at our software providers and opportunity. And we did make some upgrades in our core and other systems that added some cost in that category. So that's a recap of the income statement. So I'll turn it over to Shalene.