Guaranty Bancshares, Inc.

Good morning. Welcome to Guaranteed Bank Shares fourth quarter 2024 earnings call. My name is Nona Branch and I will be your operator for today's call. This call is being recorded. 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 everyone to Guaranty Bank Share's fourth quarter earnings call. Our company had a good year in 2024 with prospects of an even stronger year in 2025. I'm very proud of our whole team and our ability to continue to build and deepen strong relationships with our customers throughout our footprint in Texas. We see very positive trends across the board in our company and in every one of our markets. We are ending the year with very strong performance metrics. Our credit metrics, liquidity, capital, and earnings are all strong. We also have the capacity to grow a loan portfolio in the current year as we hopefully see increased opportunities. This capacity comes from our strong funding base of core deposits and the fact that we have good capacity in all of our lending buckets, as well as our overall strong liquidity position. We see the biggest opportunity for our company to build further shareholder value in the area of continued organic growth as we further mature our expansion markets and our footprint throughout the state of Texas. This is going to remain our focus in the coming year. Additional organic growth of assets in our current platforms is very creative to our shareholder value for us long term. We also see a disconnect between our current stock price and what we feel is a fair market value of our company. So we also plan to utilize our strong capital position to much more aggressively buy back stock in the coming months. We are fortunate to be in some of the strongest markets in the country and have a very strong brand name and brand recognition within the state of Texas. And we're also the right size bank at $3 billion to handle almost any customer relationship, while at the same time being small enough to maintain a true community bank philosophy and focus. Again, I'm extremely proud of our team and the results our team produced this past year, and we're very excited about the current year. Now, with this, I'm going to turn it over to Shalane to go through our investor deck, and then we'll open it up to questions. Shalane?

Thanks, Ty. I'll kick it off this morning with the balance sheet. Total assets were up about $19 million during the fourth quarter of 2024. Our securities portfolio increased by nearly $56 million. However, that was offset by a decrease in cash balances of about $17 million. Our net loans were down $5 million, and we also sold an REO property that had a book value of $14 million during the quarter. On the liability side, total deposits were up $23 million during the fourth quarter, but equity was down slightly because our net income of about $10 million was offset by an increase in unrealized losses in the AFS securities portfolio of $8.1 million. and we also paid dividends of $2.7 million or $0.24 per share during the fourth quarter. For the year, total assets were down about $69 million, primarily due to a smaller loan portfolio. Loans decreased $191 million during the year that were partially replaced with securities, which increased $75 million, and by cash during the year, which increased $57 million. Total deposits in 2024 increased 59 million, and we also paid down nearly 150 million in federal home loan bank advances and other borrowings. Total equity increased during 2024 by 15.3 million, resulting primarily from our net income of 31.5 million. We had some stock options that exercised for about 2.3 million. And that was offset by an increase in other comprehensive loss in the securities portfolio of 1.8 million. We also had stock repurchases of 6.4 million, and we paid dividends during the year of 11 million or 96 cents per share. On the income statement during the fourth quarter, the company earned 10 million in net income, which equates to 88 cents per basic share. and is up from $0.65 in the linked quarter, up from $0.51 in the fourth quarter of 2023. Our earnings were largely boosted by an improvement in net interest income from the linked and prior quarters. Non-interest income and expense also improved, which I'll discuss here in a minute. And then total net income for the year was $31.5 million or $2.75 per basic share. Our return on average assets was 1.2 percent for the quarter compared to 0.96 in the prior quarter. And our return on average equity was 12.68 percent for the quarter compared to 9.58 percent at the end of Q3. Net interest margin improved quite a bit. It was 3.54 percent in the fourth quarter, which is an increase from 3.3 percent. at the end of third quarter and 3.11% during the same quarter last year. As you all know, the Fed lowered rates by 50 basis points during the quarter, and we benefited from that on the cost of deposits, while our loan and securities portfolios continued to reprice upward. The average yield on loans increased seven basis points to 6.42% during the quarter. while our AFS securities increased six basis points to 3.81% here in the quarter. The average rate of costing liabilities, however, decreased 27 basis points from 3.36 on September 30th to 3.09 at the end of Q4. For the year, our net interest margin increased 17 basis points from 3.15% to 3.32%, as the yield on interest earning assets increased 47 basis points, while the cost of liabilities increased only 35 basis points. Non-interest income increased by $572,000 during the fourth quarter compared to the third quarter. This was primarily due to a gain on sale of $467,000 that is included in other non-interest income on the income statement. That gain is from the sale of the ORE property in Austin that had a book value of $14 million after we reserved $900,000 for that property back in the second quarter of 2024. So we recovered some of that allowance expense during the fourth quarter. Non-interest expense decreased by $798,000 during the fourth quarter compared to the third quarter. A large portion of the decrease was due to ORE holding costs of $371,000 in the third quarter that we did not have in the fourth quarter. So $371,000 of the decrease is from costs that we booked in the third quarter. The remaining decrease resulted mostly from employee benefit costs declining. We're partially self-insured for health care. So the expense can fluctuate somewhat based on actual claims from our employees. And thankfully, we've had lower claims throughout the year, which meant lower accruals were needed during the quarter. We also had some notable retirements of longtime senior employees during the year and did not have any real growth in the number of employees. So that's resulted in lower salary and benefit costs overall. And then finally, because of the higher income and lower expenses, our efficiency ratio improved this quarter to 62.23%. All right, on to the loan portfolio and credit quality. Gross loans decreased $5.4 million during the fourth quarter and decreased $191.4 million year-to-date, primarily in our CNI. CND and CRE loan segments. We've mentioned several times on these calls that we strategically shrunk the balance sheet over the past year or two to really position ourselves for future growth and to limit exposure to possible losses from economic uncertainty we've had over the past couple of years. And our loan portfolio was certainly a part of that. We tightened underwriting and we also allowed some transactional loan accounts from back in 21 and 22 to move elsewhere. However, during the fourth quarter, we did continue to originate new loans. We originated 103.1 million in new loans at an average rate of 7.36%. So our new loan yield remains pretty good. Non-performing assets also continue to remain at very low levels. Our non-performing assets to total assets were 0.16% at year end. compared to 0.66% at the end of Q3. Those percentages include both ORE and non-accrual loans. So, of course, the sale of the ORE property in Austin during the quarter helped lead to the improvement there. Our net charge-offs are very, very low. We essentially had no net charge-offs during the fourth quarter. And for the year, we had a net charge-off to average loans ratio of 0.02%. For the ORE, we currently have one single family property remaining, and we're hopeful that we can sell that with minimal or any losses before the end of the quarter. I'll also mention that we manage our C&D and CRE concentrations closely, including the office-related loans. We have a diverse portfolio and don't have any significant concerns in those areas. CRE represents about 40.7% of our total loan portfolio. And of that 40.7%, only 5.9% is office related. And those are mostly smaller loans that have an average balance of only 530,000. Finally, our non-accrual loans were 3.7 million as of December 30th, which is down from 5.7 million in the prior quarter and represents only 0.17% of our total loans. Our substandard loans were $2.4 million at year end, which is down from $12.3 million at the end of September 30th, 2024. The decrease is primarily the result of upgrading the risk rating for a relationship that was never passed to you and didn't really have any financial stress, but had some loan terms that it was non-compliant with. So We worked out the noncompliance with the borrower, got the loan back in compliance with all of the loan terms, and then the $10.9 million loan was upgraded. It's no longer on substandard. We don't anticipate any losses on that loan either. We did have a reverse provision for credit losses of $250,000 during the quarter, resulting really from lower loan balances, lower problem assets, and stable overall credit trends. On to the next slide, we've got deposits, liquidity, and capital. As I mentioned previously, our total deposits grew during the quarter by 23.3 million. Money market and savings balances increased 29.1. DDA balances increased 3.4 million. And CDs decreased 9.2 million during the quarter. For the year, our total deposits are up 59.9 million. Non-interest-bearing deposits continue to represent a good percentage of our total deposits, although they're down slightly for this quarter. They ended at 31.1% for Q4. And with respect to overall deposit risk, Guarantee has a very granular and historic stable core deposit base. At the end of the year, we had nearly 90,200 deposit accounts that have an average account balance of 29,842. So lots of smaller deposits. granular deposit account balances. Our unsecured deposits also remain relatively low, excluding public funds and guarantee-owned accounts. Our uninsured deposits were about 26.3% of total deposits at year-end. Liquidity also remains good. As Ty mentioned, we ended the quarter with a liquidity ratio of 16.5% compared to 12.2% at the end of 2023. As I also mentioned previously, we used some of those Cash flows from loan payoffs and maturing securities and also from increased deposits during the year to invest in new available for sale securities and to pay down the advances and borrowings of about $150 million during the year. We also have total contingent liability of about $1.3 billion available through various sources, including the Federal Home Loan Bank, the Federal Reserve Bank, and some lines of credit with correspondent banks. With respect to unrealized losses, unfortunately, they have gone up a little bit during the fourth quarter, but our total net unrealized losses on investment securities remains reasonable at $52.2 million, of which $20.7 million is attributable to our AFS securities and included in the equity section within accumulated other comprehensive incomes. Capital is also strong. We used a portion of our excess capital in the fourth quarter to pay a 24 cent per share dividend. We also paid a dividend for the year of 96 cents per share. During 2024, we also repurchased a little less than 211,000 shares, or 1.8% of the outstanding shares of the company. And that, of course, continues to add intrinsic value for our shareholders. And as Tom mentioned, we're looking to continue those repurchases into 2025. Our total equity to average assets at the end of the year was 10.2%. And that concludes my prepared remarks. So I will turn it back over to Nona for Q&A.