Guaranty Bancshares, Inc.

Good morning. Welcome to the Guaranteed Bank Shares first quarter 2025 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 our prepared remarks, there will be a Q&A session. Our host 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 Abston.

Thank you, Nona. Good morning, everyone. Welcome to our earnings call for Q1 2025. Guaranteed to achieve good results in the first quarter of this year. I'm very proud of our team and their continued effort to serve our customers and build new relationships across all of our markets in Texas. The Texas economy remains strong and growing. While there's certainly economic noise and uncertainty on a national level, so far we are not seeing negative impacts or signs. This quarter we did highlight the granularity of our balance sheet, both in our loan book and deposit base, similar to how we've done in past uncertain times during COVID and two years ago when there were bank failures. We continue to see the granularity of our balance sheet as offering real resilience in uncertain times for our company. Our loan book did shrink a little in Q1. However, our loan pipeline so far in Q2 is as strong as we've seen it in the last three years. So we'll see how the quarter turns out. Our net interest margin continues to build, and we're modeling for good results for the year, really regardless of whether we see rate cuts or see significant loan growth in our loan book. We did repurchase some shares in Q1 as we announced we were planning to do at the end of Q4 last year. We are currently not in the market and active in the market, but we do stand ready to reenter the market if and when we decide it makes sense. Our capital, asset quality, and liquidity all stand at very strong levels. We continue to be well-positioned for future growth, while at the same time also being well-positioned for an economic slowdown, whichever we end up facing. I'm going to turn it over to Shalane to go through the investor deck, and then we'll answer any questions you have. Shalane?

Thanks, Ty. I'll start today with the balance sheets. As Ty mentioned, total assets increased about 37 million during the first quarter. Cash was up nearly 72 million, primarily due to loan and securities-related cash flows, as well as we had increases in deposit balances during the quarter of 12.2 million. Our net loans decreased 23 million, while our total securities portfolio decreased about 7.2 million. We did purchase $30.9 million in new AFS securities during the quarter, but that was offset by about $31.5 million in maturities, calls, and mortgage-backed paydowns over the entire portfolio. Unrealized losses on our AFS securities pre-tax decreased from $20.8 million at December 31st to $14.7 million on March 31st, which was an improvement of about $6 million last year. Of course, we're not sure exactly where that's at today, but hopefully moving in the right direction there. We also sold the one remaining ORE property that we had, which was a single-family home in the DFW market that had a balance of $1.2 million during the first quarter. Our total equity increased by $6.7 million this quarter, resulting primarily from net income of $8.6 million. We had employee stock option exercises that netted us about $1.3 million, and an improvement in other comprehensive income of $4.7 million due to the decrease in unrealized losses on the AFS securities. This was offset by stock repurchases that Ty mentioned of $5.2 million, and we also paid dividends of $2.8 million during the quarter, and we're happy to say that we did increase our dividend in the first quarter to $0.25 per share. which is up from $0.24 per share for each quarter in 2024. On to the income statement, the company earned $8.6 million in net income in the first quarter, which equates to $0.76 per basic share, down from $0.88 per share linked quarter, and up from $0.58 per share in the first quarter of 2024. Compared to both the first quarter of 24 and the linked quarter, we continue to have good improvements in net interest income. While non-interest income was down and non-interest expense was a bit higher, which I'll discuss more shortly. Our return on average assets was 1.13% for the quarter compared to 1.27% last quarter, and our return on average equity was 10.83% for the quarter last compared to 12.68% in Q4. Our net interest margin was 3.7% in the first quarter, which is an increase from 3.54% in the fourth quarter and 3.16% during the same quarter last year. The NIM increases resulted from the Fed lowering their rates by 75 basis points in late 2024. as well as continued repricing of our loans, securities, and certificate of deposit portfolios. The average yield on our interest-earning assets remained flat at 5.6% from the fourth quarter, while our cost of total deposits decreased 15 basis points from 2.11% in the fourth quarter to 1.96% in the first quarter. We also believe, and we've mentioned this the past few calls, that we've got some continued tailwinds in our NIM for the remainder of 2025, and we really expect it to continue to increase a basis point or two over the next several months. The reason for our assumptions here are that, you know, aside from our $263 million in loans that float daily, we also have about $341 million invariable rate loans that reprice on different time intervals, but that we expect to reprice over the next 12 months. So 341 million that we expect to reprice over the next 12 months. Those loans currently have a weighted average rate of 6.36%. Now, assuming rates just stay where they are and that all of that 340 million reprice according to their current loan terms and balances is the new weighted average rate 12 months from now on that pool would be 7.42%, which is an increase of 106 basis points. Now, on the cost of funds side, we also have $613 million in certificates of deposit that are repricing between April 1st and year end. They currently have a weighted rate of 4.24%. If all of those CDs were to renew into the same product at our current rates, the new weighted average rate will be approximately 3.65%. So, of course, not all of the loans or CDs may reprice at those original terms, but that really helps illustrate our expectation for the continued NIM tailwinds over the next several months. Non-interest income decreased by $693,000 during the first quarter compared to the fourth quarter. This is primarily the result of elevated non-interest income in the fourth quarter from rental income that we were receiving on the Austin ORE property and then a gain on sale of that same property, which was sold during the fourth quarter. We also had a loss on sale of $184,000 during the first quarter of 2025 from the sale of that one remaining ORE property that added to that change quarter over quarter. We also had service charges and gains on sale of mortgage and SBA loans that were down slightly, really due to lower volumes during the first quarter. And then we had debit income that was up during the first quarter of 2025 compared to the fourth quarter of 24 and the first quarter of 24. That's due to an annual MasterCard bonus that we received of about $400,000 during the first quarter of this year. In 2024, that was recorded during the second quarter, so you'll see an elevated debit card income during the second quarter of last year. Non-interest expense increased by $1.3 million in the first quarter compared to the fourth quarter, and that was primarily due to employee comp and related benefits. During the first quarter of every year, we fund and expense the company contribution to our executive incentive retirement plan, and we also have additional payroll tax expense in the first quarter that's related to our year-end employee bonus that's paid at the end of January. Both of those expenses accounted for about $575,000 of the length quarter change. And, again, those are consistently expensed or make a difference during the first quarter of every year. We are also partially self-insured for health insurance, which I mentioned last quarter. We were over-accrued at the end of 2024 due to lower than expected health claims, and that resulted in a $446,000 reversal of health expense accruals in the fourth quarter of 2024, which we did not have in 2025. That resets in January of each year. We expect employee comp and benefit costs to be lower in subsequent quarters and also more consistent. Finally, our efficiency ratio this quarter was 66.78%. All right. On to our loan portfolio and allowance for credit losses. As both Ty and I mentioned, gross loans decreased $23 million in the first quarter. You know, Ty spoke to this a little bit, but we certainly anticipated and saw a strong loan pipeline at the end of 2024, but Demand for many of our borrowers has really slowed during the first quarter, as a lot of them are waiting to see how the tariff uncertainty is going to impact their businesses and the overall economy. That being said, our balance sheet is really strong, and we've got very good liquidity and are ready to grow those loans when our borrowers are ready. Ty said our pipeline is very full right now, so we're really hoping we can get that going here soon. Non-performing assets continue to remain at very low levels. Our MPAs to total assets were 0.15% at March 31st compared to 0.16% at year end. The non-performing assets include both ORE and non-approval loans. So the sale of the property in Austin during the fourth quarter helped lead to the improvement there, and then the sale of our single-family ORE property in DFW helped reduce the ratio. even more in the first quarter. Net charge-offs also remain low. Net charge-offs were 0.02% in the first quarter of 2025. They were essentially zero last quarter, and they were also 0.02% in the first quarter of 2024. Our non-accrual loans were up slightly to $4.8 million from $3.7 million as of year-end. and that represents 0.23%, less than a quarter percent of our total loans. The increase is primarily due to one single-family loan borrower that we're working on a solution for. We don't expect any losses on that loan. It's very well collateralized. Our substandard loans were up slightly, but fairly consistent with year-end. We did have a reverse provision for credit losses of $300,000 during the quarter. And we didn't change our qualitative factors at all that decreases resulting almost entirely from lower loan balances and stable credit trends. Our quarter end ACL coverage is 1.32% of total loans, which is one basis point lower than our year end percentage of 1.33%. You know, if the Tariff situation is cleared up, and we have some more certainty there, and the economic outlook starts to improve. We do anticipate that we will adjust the qualitative factors at some point, which may result in future reverse provisions as well. Of course, that will be offset if the loan portfolio starts to grow again. All right. On to deposits, liquidity, and capital. Our total deposits grew $12.2 million during the quarter. Money market and savings balances increased $19.6 million. DDA balances increased $11.5 million during the quarter, and our certificates of deposit decreased $18.9 million. Non-interest-bearing deposits continue to represent a good percentage of our total deposits. We had a ratio of 31.3% at quarter end, up a couple of basis points from last quarter. With respect to overall deposit risk, Guaranteed has a granular and historically stable core deposit base. At the end of the first quarter, we had just over 91,100 active deposit accounts that had an average account balance of just under $30,000. Our uninsured deposits also remain relatively low, excluding our guaranteed owned accounts. Uninsured deposits were 26.7% of total deposits at quarter end. As Ty mentioned, and I mentioned previously, our liquidity right now is great. We're ready for some loan growth. We ended the quarter with a liquidity ratio of 19.8% compared to 16.5% at year end. Our cash balances increased $72 million during the quarter to $217.8 million in total cash and cash equivalents. We also anticipate another $116 million in principal and interest cash flows from maturing securities between now and year-end that we'll either use for loan growth or to reinvest in securities or cash. We also have total contingent liquidity of about $1.3 billion that's available through the Federal Home Loan Bank, the Federal Reserve Bank, correspondent bank, Fed Funds lines, and a revolving line of credit. Finally, with respect to liquidity, you know, our total net unrealized losses on investment securities remains very reasonable at $41.7 million, of which $14.7 million is related to our AFS securities and included in AOCI on the balance sheet. Capital is also strong. Like Ty mentioned, we used a portion of our excess capital in the first quarter to pay $0.25 per share dividend, and we also repurchased 127,537 shares of guaranteed stock, which represented about 1.1% of outstanding shares. And this, of course, continues to add intrinsic value for our shareholders. Our total equity to average assets as of year one March 31st was 10.5%, and our TCE to total assets was strong at 9.37%. So this concludes our prepared remarks. I will turn it back over to Nona for Q&A.