Guaranty Bancshares, Inc.

Good morning and welcome to Guaranty Bank Shares first quarter 2023 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 hosts 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. 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 Aston.

Thank you, Nona. Good morning, everyone, and welcome to our earnings call for the first quarter of 2023. I'm going to make a few comments and I'm going to turn it over to Kathy and Shalane to go through our presentation. We had a solid quarter given the environment that we were in, all of us as banks. This was an unusual environment, one that I truly haven't seen in over 30 years of doing this. There's a uncertainty with our depositors that I didn't even see in 2008 that I think is gonna have some consequences that ultimately will require our leaders in Washington to address. And we probably will see those the second half of the year. We did add a level of deposit granularity and portfolio, loan portfolio detail to this earnings release that we had in the past, given the messaging and everything that we're hearing the last few weeks. So to give a little more color on our balance sheet and our company. Also, our bond portfolio exposure, we added more detail on that. And related to credit, we're just not seeing credit deterioration in our markets. The Texas economy remains very strong and vibrant our sense is that our economy in Texas will slow down second half of the year like other economies, but we do think credit issues are probably going to be more related to the geography of the credits, at least in our view. I'm going to turn it over to Kathy and Shalane, let them walk through everything, and then we'll open up to Q&A and answer questions you have.

All right. Thank you, Ty. Let's hit the balance sheet highlights first, and then we'll go over some of the earnings metrics. On our balance sheet, our total assets did end the quarter with $3,356,000,000. That's pretty comparative to beginning of the year, which we started the quarter at $3,351,000,000. So basically no change in footings. We did see a decrease early on during the quarter, January and February had a decrease. And then in March had an increase in assets, which were partly driven by an increase in our deposits. And we'll discuss that here in a little bit too. So our quarterly average assets though, were down a little bit lower than from linked quarter. They were 3,325,000,000. So you'll see that in one of the tables. In the bond portfolio, it was down about 48 million. That's pretty evenly dispersed among treasuries, agencies, and munis. We have pretty good cash flow in there. We got another about 45 million in Q2 and another 45 million in the second half of the year. So as a general rule, basically we're taking those and we'll be paying down some of our advances, more so probably than getting back into the bond portfolio going forward. Looking at the loans, not much change there at all. We ended the quarter at $2,380,000,000. Average for the quarter was $2,388,000,000. So it's pretty steady in loan volume throughout the quarter. Looking at the liability side, deposits did decrease $57.8 million. That's 2.2% during the quarter. Pretty comparable when you look at the average table, quarter to quarter, it was down about 3.5%. Again, we saw a big dip early on and then increase in March. Of that 57.8 million decrease, non-interest bearing decreased about 59.6 million and interest bearing increased almost 2 million. So we did see a little remix and deposit, a little shift in deposits. I think that's just customers going after yield, where in the past its rates have been so low it really hadn't mattered as much. So I think we'll continue to see some of that remix going forward, too, in 2023 as rates continue to be higher on the higher end. Non-interest-bearing balances did still average for the quarter and at quarter end 38% of total deposits. That compared to all of last year, they averaged about 39%, so still relatively high compared to total deposits. We did see a shift within our interest-bearing deposits too from non-maturing interest-bearing to time deposits. We can discuss a little bit about the effect of that on the income statement here in just a minute. Federal home loan bank advances, you saw they did increase 50 million. They ended the quarter at 340 million. Most all of those are short-term advances and can be paid down as securities mature and or deposits increase. Again, you'll see some of that breakdown in the press release about the federal home loan bank advances. Equity did increase $4.7 million. Of course, that's obviously had earnings for the quarter. We'll discuss that $8.3 million. We did repurchase some stock, about 25,700 shares for a total of $744 million. And we also paid a dividend of $0.23 per share. That's a 4.5% increase and about 32% of income for the quarter. Our AOCI did decrease slightly, about 450,000, and is now at 24.7 million. That's about 7.6% of equity. Shalene will go over a little more detail of that here in just a minute. Our tangible common equity ratio at quarter end was 8%. That's up slightly from 7.87% at year end. That's kind of the highlights of the balance sheet. Now turning to the income statement details, I said our first quarter net earnings were $8.3 million. That's a return on average assets of 1.01% and a return on average equity of 11.18%. It's also earnings per share of 69 cents. These numbers are a little higher than they were last quarter, but last quarter we did record a $2.8 million provision in Q4. And we did not do a provision or a reverse provision in this quarter. And then as we've done now for a couple of years, we've included a table of quarterly core earnings. And this quarter, because of those changes I just discussed, it's going to be a little lower than last quarter. And that's driven also by lower net interest income. You can see we put some discussion in there. Our net interest margin was 3.24%. That's down 33 basis points from the linked quarter. Although top line revenue and our average yield on earning assets was higher, it was outpaced by growth and interest expense on our costing liabilities. And most of that's going to be mainly driven by our cost of interest bearing deposits. As I said, we did see a shift in our deposits from non-interest bearing to interest bearing, and we increased the rate on all of our deposit products, not necessarily to lead the market, but to be very competitive in the communities we serve. So we made that decision during the quarter, and that obviously increased our cost of funds. The average Rate on our interest-bearing deposits was 1.91% of the quarter. That's up 83 basis points from linked quarter. And then our total cost of deposits was 1.18%, which is up 54 basis points from linked quarter. Again, that's a pretty high interest-bearing beta factor for the quarter. But if you look year to year, it's probably pretty much in line. I think it's about 25%. 25% on interest-bearing deposit data for the year. Non-interest income was down about 4%. That's 217,000, the details in the press release. Again, our mortgage volume for the last two quarters continues to be lower than we experienced in most of 2022. So that's some of the driving factor of non-interest income being a little bit lower. Non-interest expense was also down. It was down about $930,000. That's 4.5%. Again, a lot of details in the press release, and a lot of our expense categories saw some lower levels quarter over quarter. If you'll look then over the next page and look at some of our loan and credit quality, As I said earlier, loan volume was pretty stable for the quarter, but with rising yields, as you would expect. And we talk a little bit about there's, I think the new yields, new loan origination yield 7.27 compared to 6.5% in Q4. So our total loan yield was up about 27 basis points from the last quarter. Credit quality, as Ty talked about, remains very strong. Our non-performing assets to total assets were 0.4%. And again, in the press release, we talked about the five loans. I think that's three relationships within this category. And we do not expect much loss, if any, in this group of loans. Charge-offs were very low. As I said, we did not do a provision. And our allowance for credit loss coverage is 1.34% at quarter end, which is similar to what it was last quarter. We have added some risk management bullets that Ty mentioned too. So I'm going to turn it over to Shaleen and let her go over some of those. Shaleen.