Guaranty Bancshares, Inc.

And welcome to the Guaranteed Bank Shares third 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 this call is being recorded. After our prepared remarks, there will be a Q&A session. Our hosts 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, Nana. Good morning, everyone. And again, welcome to our third quarter earnings call. Our company did have a good quarter. We did have some extraordinary expenses related to a couple of properties we have in ORE where we capitalized expenses on those properties. We feel like those will be resolved next few weeks as we have both those properties under contract. So that will kind of resolve itself and we'll recoup some of those expenses. Our growth is still muted. Our best customers are really being cautious right now with where things are with rates. And we do think as we get into 25, we see some rate reductions get past the election. Some of the geopolitical things kind of calm down. We'll see additional growth in our state. Our state still has a very vibrant economy, but we are seeing muted growth, again, with some of our best customers. We do have a strong core deposit base, and that's something we've really been focused on the last two years. And we've certainly added to that this year. You know, our strategy, as I've mentioned before, We really grew this company significantly from 2012 to 2016, probably more than any time in our history, that five-year period. We were able to do that because we came out of the financial crisis in a strong position. So our strategy the last couple of years has been to do the same thing, is to position this company where we had strong liquidity, strong capital, strong asset quality, and the capacity to lend. In other words, our lending buckets had room to grow the company and grow the portfolio. And that's kind of the strategy we've been operating the last two years as we go into 25. We think we're well positioned to grow this company another billion, $2 billion over the next three to four years because of those conditions. The fact that we have all those strengths in place to grow when we see growth in our markets and we see it makes sense. And that's going to be organic growth. That's going to be both on acquisitions. And there's just a lot of opportunities when you're in that position where you have options to to grow the company, again, both organically and both on acquisitions as opportunities present themselves. So we're starting to plan 2025. We feel really good about the year. The growth we're not sure of at this point. We do think we'll see positive growth. But again, we're waiting on conditions, you know, with rates and political conditions and everything else to kind of help that. But the overall positive narrative around taxes is still very positive. and a lot of opportunities in front of us related to that. And then we're still, and we're also starting to do our updated strategic plan that we'll do in the first part of 25, which again, like I've kind of outlined, has some real growth opportunities for us because of the way we're positioned as a company in the coming few years to capitalize on opportunities. So with those open remarks, I'll turn it over to Shaleen, who has a investor presentation. And after she goes through that, then we'll open it up to Q&A.

Thanks, Ty. I'll kick it off like usual with the balance sheet. Total assets are down about $88 million year to date, but our total assets actually increased $15.5 million during the third quarter, while total liabilities increased by about $4.8 million. Our gross loans decreased by $78.5 million, but we replaced those dollars with available for sale securities and with cash. We purchased about $24.1 million of mortgage-backed securities with a weighted average yield to maturity of about 4.9% during the quarter. And we also purchased $15 million in U.S. treasuries that had a weighted average yield of 3.9%. And of course, on the Cash side, we were yielding about 5.3%. On the liability side of the balance sheet, deposits and repurchase agreement balances increased 48.8 million, and those were offset by the repayment of 45 million in federal home loan bank advances, which now have a zero balance on the balance sheet. Total equity increased 10.7 million during the quarter. primarily resulting from net income of $7.4 million and an improvement in our accumulated other comprehensive income of $6.6 million. This was offset by dividends paid of $2.7 million or $0.24 per share, and we repurchased nearly 60,000 shares of Guarantee stock during the third quarter. On the income statement, the company earned 7.4 million in net income, which equates to 65 cents per basic share, which is consistent with what we earned in Q2, and up from 54 cents per share in the third quarter of 2023. Earnings were fairly on target with where we expected them to be in the third quarter, but were boosted slightly by a $500,000 reverse provision for credit losses, as you all noted in your first look reports this morning, and we'll talk about that here in a minute. Our return on average assets was 0.96% for the quarter compared to 0.95% in Q2, and our return on average equity was 9.58% for the quarter compared to 9.91% in Q2. Our net interest margin was 3.33% this quarter, which is an increase from 3.26%. in the second quarter and 3.02% during this quarter last year. Those increases from the prior quarter and prior year quarter result from improvements in interest-earning assets that were better than our rates on our costing liabilities. The average yield on interest-earning assets during the third quarter increased one basis point from 5.61% to 5.62%. while the average rate of our costing liabilities decreased seven basis points from 3.43% in the second quarter to 3.36% in the current quarter. We expect to see continued overall improvements in the NIM as many of our loan assets continue to reprice from three and four and five years ago at the higher rates that they are now. But also, we'll be able to see some improvements on the deposit side. A significant amount of our interest-bearing deposits now, about $740 million, are certificates of deposit. Those are primarily made up of nine-month and 13-month CD specials that we've had running for the past couple of years. In the fourth quarter, we anticipate that $253 million in CDs will reprice, and those CDs currently have a weighted average rate of 4.77%. The nine-month and 13-month specials that we have now, depending on whether it's a jumbo CD or non-jumbo, range from 3.55% to 4.2% if it's a jumbo nine-month CD. So we'll be able to see quite an improvement on the deposit cost side over the next quarter. And then about 90% of our total CD portfolio will reprice over the next nine months. The average rate on those CDs that are maturing over the next nine months is 4.73%. Noninterest income decreased by $555,000 during the quarter, resulting primarily from a $900,000 ORE valuation allowance that we had in the prior quarter that was not present in this quarter. However, noninterest expense increased by about $76,000, which was primarily due to holding costs related to the ORE, which I'll talk about a bit more shortly. Our efficiency ratio was 70.47% for the quarter. Onto credit and allowance for credit losses. Our gross loans, as I mentioned, decreased 78.5 million in the second quarter and have decreased about 186 million year to date, primarily in our CNI construction and development and CRE loan segments. During the third quarter, we did, however, originate 63.8 million in new loans that had an average rate of 8.07%. So new loan yields remain at good levels. Non-performing assets continue to remain at historically low levels at 0.66% of total assets for the quarter compared to 0.71% in the prior quarter. Those percentages include both ORE and non-accrual loans. But if you exclude the ORE, which Ty mentioned we expect to resolve in the fourth quarter, non-performing loans as a percentage of total loans is 0.25% and as a So really, really low levels there. Net charge-offs also remain low. We had a $239,000 net charge-off during the quarter, and our net charge-off to average loans ratio was 0.04%. For the ORE, we currently have the same two properties that we mentioned last quarter in the earnings call and in the queue, but we now have sales contracts on both of them, as Ty mentioned. We have incurred some holding expenses to repair those properties for sale during the quarter, as well as some legal and maintenance expenses, but we hope to recoup some or all of those expenses on the sale of the properties. We expect both of them to close in the fourth quarter, likely in November, and we do not anticipate any losses from the current book values that we have for both of those. As I've mentioned, for several quarters now, we manage C&D and CRE concentrations, including office-related loans, very closely. We have a diverse portfolio, and we really don't have any significant concerns in those areas. CRE represents about 40.5% of our total loan portfolio. Of that 40.5, only 5.8% is office-related, and those loans have an average loan balance of only $544,000. Finally, our non-accrual loans were $5.1 million as of September 30th, which were down from $6.2 million in the prior quarter. And our substandard loans were $12.3 million at quarter end, which is down from $18.7 million at the end of Q2. The decrease in substandard loans is a result of payoffs and upgrades for a couple of loans that have been current and compliant with loan terms for a number of months now. As I mentioned previously, we did have a reverse provision for credit losses of $500,000 during the quarter, which resulted almost entirely from lower loan balances, the lower substandard loan balances, and really just stable overall credit trends. Our quarter end ACL coverage is 1.34% of our total loans, which is similar to the 1.33% that we had at year end. All right, on to deposits, liquidity, and capital. Our total deposits grew during the quarter by 42.8 million, and our customer repo balances were up about 6 million for a combined increase of 48.8 million. DDA balances increased 19.2 million during the quarter, while CDs increased 24.5 million, and money market and savings accounts decreased about a million. Non-interest-bearing deposits continue to represent a good percentage of our total deposits at 31.5% at quarter end. With respect to overall deposit risk, Guarantee has a very granular and historically stable deposit base. At quarter end, we had nearly 90,000 deposit accounts with an average account balance of just under $30,000. Our uninsured deposits also remain relatively low. Excluding public funds and guarantee-owned accounts, uninsured deposits were 26.3% of total deposits at quarter end. Liquidity is also good. We ended the quarter with a liquidity ratio of 17.1%. And as I mentioned previously, we used some cash flows from matured securities and loan repayments to invest in new available-for-sale mortgage FAC. and treasury securities, and also to pay down federal home loan bank advances by $45 million during the quarter. And that balance is now zero. We also have total contingent liquidity of about $1.4 billion that's available to us through federal home loan bank advances, the Federal Reserve Bank, and correspondent bank Fed funds lines. Our total net unrealized losses on investment securities continues to improve and remains reasonable. at about 33.2 million. That's for both AFS and HTM. About 10.6 million of that is attributable to our available for sale securities and included within the AOCI. Capital is also strong. We used a portion of our excess capital in the second quarter to pay a 24 cent per share dividend and to repurchase nearly 60,000 shares of GNTY stock at an average price of 30.65 cents per share. This, of course, continues to add intrinsic value for our shareholders, which we like to see. Our total equity to average assets as of June 30th was 10.4%. That concludes our prepared remarks, so I will turn it back over to Nona for Q&A.