Guaranty Bancshares, Inc.

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

Thank you, Nona. Good morning and welcome to our second quarter earnings call. Before we turn it over to Shalene and go through our investor deck, I wanted to make a few comments. First, I wanted to say how proud I am of our team. and the results we've produced, not only for this quarter, but for the full year. Our team continues to do a great job of serving our customers and maintaining strong relationships in all of our markets and to continue to look for opportunities to build our franchise. The Texas economy remains resilient, and I really see 2025 as the year that we're going to start seeing additional growth and continued growth in our markets. Our strategy has been and continues to be to maintain a well-positioned bank for an uptick in economic growth. This requires us to maintain strong asset quality, strong capital position, good liquidity, and really to have lending capacity in all of our key sectors, which we currently have and plan to maintain so we are positioned for growth in the coming quarters. With these comments, after this, I'll turn it over to Shalane. She's going to go through our investor deck, and then we'll open it up to Q&A.

Great. Thanks, Ty. I'll kick it off with the balance sheet first. As Ty mentioned, we're continuing with our strategy to shrink the balance sheet. You know, we believe there's still some economic and political uncertainties out there right now that require heightened risk management around loan growth. But hopefully those will start to improve in 25, as he mentioned earlier. However, because of our strong core earning stream and our customer base, our net income remains good, and we're on target to keep earnings similar to what they were in 2023. Our total assets decreased $45.8 million during the quarter, while total liabilities decreased about $48.5 million. Those decreases are primarily from loans, which were down gross about $50.3 million from and also on the liability side from a $30 million decrease in federal home loan bank advances that we repaid during the quarter, and some lower customer repurchase account balances. Cash was up somewhat, and we also purchased about $18.6 million in new available for sale securities during the quarter, which had an average yield of about 5.3%. On the liability side, deposits were fairly flat. As I mentioned, we repaid some federal home loan bank advances, and then customer repo balances were down about 13.9 million. Total equity increased 2.7 million during the quarter, which was a result of net income of 7.4 million and an improvement in unrealized losses on the AFS portfolio of 1.45 million. That was offset by dividends that we paid of 2.7 million or 24 cents per share. That quarterly dividend is up from 23 cents per share back in 2023. We've paid 24 cents now for the first quarter and the second quarter. And also we repurchased 138,427 shares of guaranteed stock during the quarter. On the income statement, the bank earned 7.4 million as I mentioned in net income which equates to 65 cents per basic share in the second quarter, which is up from 58 cents per share in the first quarter and down from 82 cents in the second quarter of 23. But in the second quarter of 23, you'll recall we had a large one-time gain from the sale of TIB stock of 2.8 million, which of course we didn't have this year and helps explain some of that change from the prior year quarter. Our return on average assets was 0.95% for the quarter compared to 0.85% in Q1. And our return on average equity was 9.91% for the quarter compared to 8.93% in Q1. Our net interest margin continues to increase, which we're proud of. It was 3.26% in the second quarter. up from 3.16 percent in the first quarter and 3.19 percent during this quarter last year. The increase from prior quarter and prior year quarter results from improvements in our interest earning assets in both loans and securities that are higher than the costing liabilities during the same period. And of course, from a lower denominator in that ratio, the average interest earning assets are lower as well overall. Non-interest income decreased by $659,000 during the quarter, which resulted primarily from a $900,000 ORE valuation allowance, which I'll talk about in a second. That was offset by higher debit card income in the current quarter from an annual MasterCard bonus payment that we received. And then in the first quarter, we also had a $499,000 receivable recovery that we did not have this quarter, which also contributed to the linked quarter change. For the ORE valuation allowance, we mentioned last quarter that we foreclosed on a nice mixed use property in a good area in South Austin. The appraisal we had from March of 2023 had a pretty aggressive capitalization rate. And as we dug into the cap rate trends in South Austin, along with getting a better understanding of the property and the income stream from that property, we felt it was prudent to apply a more aggressive cap rate. So that resulted in the $900,000 valuation allowance that we recorded. But of course, you know, there's factors that could allow us to reverse that if cap rates go back down or hopefully not, but conversely go the other way as well. But we believe that with that valuation allowance, we have the property conservatively valued on our books right now and appropriately valued. Ty, do you have any further comments on that? right now?