Guaranty Bancshares, Inc.

Good morning. Welcome to the Guaranteed Bank Shares first quarter 2024 earnings call. My name is Nona Branch and I will be your operator for today's call. I would like to remind everyone that today's 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 Shalane Jacobson, Executive Vice President and Chief Financial Officer. To begin our call, I will now turn it over to our CEO, Ty Amston.

Thank you, Nona. Good morning, everyone. Welcome to Guaranteed Bank Shares' first quarter 2024 earnings call. As you've read in our press release we just issued, we did have a good quarter. I'm very proud not only of the quarter, but our entire team Our team remains focused on developing strong banking relationships in all of our markets across the state of Texas. Our asset quality remains strong. Our net interest margin continues to build. And our local economies appear to continue to remain stable across the board. We did release quite a bit of detail in our press release. However, we do have a presentation on some highlights that I'm going to turn it over to Shalene to go through. And then after that, we'll answer any questions you have. Shalene?

All right. Thanks, Ty. I'm going to start off with the balance sheet. Total assets decreased by about $57.4 million and total liabilities decreased $59.4 million during the quarter. We've continued with our strategic decision that began really back in early 2023 to shrink the balance sheet rather than grow at this time because we've got to that allows us to really continue to have good profits without taking on the added risk from various economic uncertainties and other headwinds that we believe are still in place today. The year-over-year decrease in assets during the quarter consisted of lower cash balances of about $16 million, lower securities balances of about $8 million, net of some repurchases that I'll talk about here in a second, and a decrease in net loans of $57 million during the quarter. These asset decreases were used on the liability side of the balance sheet to pay down federal home loan bank advances by $65 million and also to repay $25 million in matured brokered CDs that we obtained back in 2023 to test as a source of liquidity, and we did not renew those when they matured in February. Total deposits decreased 5.4 million during the first quarter, but excluding those 25 million in brokered CDs were up slightly by 19.6 million. We also had 30 million in short-term treasuries that we invested in back when we had lots of cash after COVID that matured during the quarter. And we reinvested those treasuries along with some additional cash into new available for sale securities. We purchased just over 39 million during the quarter at a weighted average yield to maturity of 5.23%. We've got With respect to those short-term treasuries, we've got about 40 million of those remaining, and they will mature between now and June of 2025. Our total equity increased 2.1 million during the quarter as a result of 6.7 million in net earnings and was offset by dividends paid of 2.8 million. for 24 cents per share, which is an increase from 23 cents per share that was paid in dividends during each quarter in 2023. We also repurchased 11,651 shares of Guaranty stock at a weighted price of $28.76 per share. On the income statement side, the bank earned 6.7 million in net income in the first quarter which equates to 58 cents per basic share, which is up from 51 cents per basic share in Q4 and down a bit from 69 cents in the first quarter of 23. Our return on average assets was 0.85% for the quarter compared to the 0.73% last quarter. Our return on average equity was 8.93% in the first quarter compared to 7.93% in the fourth quarter. Net interest margin was 3.16%, which is an increase from 3.11% in the prior quarter. That increase resulted from an 11 basis point improvement in our interest earning asset yields. which was offset by only a six basis point increase in our interest-bearing liability costs. Our NIM was helped by new and repricing loans during the quarter for sure, lower federal home loan bank advances, and primarily by a slowdown in the repricing of our interest-bearing deposits as rates have remained constant. Non-interest income increased by 462,000 during the quarter, which resulted primarily from the recovery of just under 500,000 of SBA guarantee accounts receivable that had been partially charged off back in 2022 due to uncertainty at that time about the full collectability of those guarantees from the SBA. However, as the SBA has reviewed those over the last year and a half and after their final review, the full amount of the guarantee was actually received So we were able to recover the full amount and recover those amounts that had been previously charged off back in 2022. We also had two SBA loan sales during the quarter, which helped us increase our gain on sales of loans during the quarter by about $76,000 quarter over quarter. Non-interest expense was $700,000 lower in the first quarter, primarily due to the retirement accrual of $600,000 that we booked earlier. back in the fourth quarter of last year that we did not have again this quarter. We also had some lower general and administrative expenses in the first quarter. As I've mentioned on some calls in the past, we continue to anticipate that non-interest expense will be about 2.5% of total assets, which is a threshold that we really try hard to stick with. I think that's a good measure for us. All right, on to the loan portfolio and credit quality. Gross loans, as I mentioned, decreased $57.3 million in the first quarter, primarily in our C&I, C&D, and CRE buckets. With respect to the CRE bucket, we did have $14.9 million move out of that CRE category into REO. when we foreclosed on a property in Austin, Texas back in February, which I'll talk more about here in a moment. We did originate $62.9 million in new loans during the first quarter of 24 at an average yield of 8.39%. So new loan yields do remain strong. Our non-performing assets really continue to remain at historically low levels at 0.68% of total assets for the quarter. compared to 0.18% in the prior quarter. Charge-offs also are low. We only had $110,000 during the quarter, and our net charge-off to average loans ratio was 0.02%. Back to the non-performing assets, that figure includes both REO and non-accrual loans, and it, of course, increased in the first quarter primarily due to that $14.9 million that we recorded in REO from the foreclosure of the property in South Austin. We mentioned that property in prior calls as it has been on our substandard list in the past as we tried to work that loan out. But we did, like I said, foreclose on it in February of 2024. The property is in a very hot, vibrant area in South Austin and had a pre-foreclosure LTV. of 68.5% based on an appraisal from early 2023. It is an operating property and we do expect to start recording non-interest income and expense related to that property in the second quarter of 2024 until it's sold. And there has been quite a bit of interest in it. So I'll let Ty talk about that during Q&A once our remarks are finished here. Commercial real estate and office-related loans continue to be a hot topic. However, we manage them very well. We have a diverse portfolio and really don't have any significant concerns in those areas. Commercial real estate represents about 40% of our total loan portfolio. But of that 40%, only 4.6% is office-related, and those loans have an average loan balance of only $516,000. So it's primarily mom and pop office real estate. Non-accrual loans also remain low, but did increase slightly during the first quarter. We're continuing to work through the problem loans, but most of them are well-collateralized, and we don't expect any significant losses at this time. Finally, our substandard loans were $17.5 million at quarter end. which is down about $4.6 million from year end. The decrease resulted from the $14.9 million move to REO, but was offset partially by an increase in smaller dollar loans. The substandard loans are pretty granular. We've got 141 of them with a low average balance of about $109,000. We did have a reverse provision for credit losses of $250,000 during the quarter. That resulted primarily from lower loan balances and really just overall stable credit trends. We did adjust for economic conditions back in 2023 in our Q factors. We feel like those are still applicable today. So we didn't make any further adjustments to the Q factors during this quarter. Our quarter end ACL coverage is 1.35% of total loans. just slightly higher than the 1.33% that we had at year end. And then finally, on to deposits, liquidity, and capital. Our deposits decreased by $5.4 million during the quarter, which again, was primarily due to the maturity of the $25 million in brokered CDs that were not renewed. We also had some continuing shift from non-interest bearing to interest bearing deposits during the quarter. Non-interest bearing deposits decreased $27.1 million, while savings and money market accounts increased by $30.8 million. And certificates of deposit, excluding the brokered CDs, increased $15.9 million. Despite those shifts, however, our non-interest bearing deposits still represent 31.5% of total deposits at quarter end. But we do expect that ratio to be closer to our historical average of mid to high 20s as we continue moving later into 2024 and early 2025. With respect to overall deposit risk, Guarantee has a very granular and historical stable core deposit base. At quarter end, we had over 88,000 deposit accounts with an average account balance of $29,696. And our uninsured deposits also remain relatively low, excluding public funds, which are collateralized by investments and guarantee-owned accounts. Our uninsured deposits were 25.43% of total deposits at quarter end. Our liquidity remains good. We ended the quarter with a liquidity ratio of 10.6%, and we used some of that liquidity during the quarter cash flows. for matured securities to pay down. Federal Home Loan Bank advances $65 million this quarter. We've paid down our advances by $265 million over the past 12 months. Our FHLB advances are down to $75 million at quarter end. We continue to have total Contingent liquidity of about $1.3 billion available to us through various sources, including the Federal Homeland Bank, Federal Reserve Bank, and some correspondent Fed funds lines and a revolving line of credit. Our total net unrealized losses on investment securities remains reasonable at 53.6 million, of which 21.1 million is attributable to our available for sale portfolio. and included within other comprehensive income. Finally, capital is also strong. We used some of our excess capital in the first quarter to repurchase shares of guaranteed stock and continue to add intrinsic value for our shareholders. We repurchased 11,651 shares at an average price of $28.76 per share. And also, as I mentioned previously, the board also increased the dividend paid during the quarter to $0.24 a share. from 23 cents a share previously. So that concludes our prepared remarks for today. I'll turn it back over to Nona for Q&A.