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Monday, April 21, 2025
CALL PARTICIPANTS
- Chairman and Chief Executive Officer: Ty Abston
- Executive Vice President and Chief Financial Officer: Shalene Jacobson
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- Net Income: $8.6 million ($0.76 per basic share), down from $0.88 per share in Q4 2024 but up from $0.58 per share in Q1 2024.
- Net Interest Margin: 3.7%, up from 3.54% in Q4 2024 and 3.16% in Q1 2024.
- Loan Balance: Net loans decreased by $23 million, a slide management attributed to lower utilization of C&I (commercial and industrial loan) lines.
- Deposits: Increased by $12.2 million, with money market and savings increasing by $19.6 million in Q1 2025 and DDA (demand deposit accounts) up $11.5 million, but certificates of deposit decreased by $18.9 million.
- Capital Actions: Repurchased 127,537 shares, representing 1.1% of outstanding shares, and increased quarterly dividend to $0.25 per share from $0.24.
SUMMARY
Guaranty Bancshares reported mixed Q1 2025 results amid economic uncertainty, with strong net interest margin (NIM) improvement, offset by lower loan balances. Management cited a robust loan pipeline despite the quarter’s contraction, indicating potential for future growth, pending economic clarity in 2025.
The bank’s balance sheet, featuring over 91,100 deposit accounts averaging under $30,000 as of Q1 2025, is viewed as a source of resilience.
“Our net interest margin continues to build, and we are modeling for good results for the year, really regardless of whether we see rate cuts or see significant loan growth in our loan book,” said CEO Ty Abston.
Management anticipates net deposit growth for the year of 2% to 5%, focusing on relationship-based core deposits across the bank’s footprint.
INDUSTRY GLOSSARY
- NPA: Nonperforming Assets, including both Other Real Estate Owned (ORE) and nonaccrual loans.
- ACL: Allowance for Credit Losses, a reserve maintained to cover potential loan losses.
- TCE: Tangible Common Equity, a measure of a bank’s capital strength excluding intangible assets.
Full Conference Call Transcript
Nona Branch: Good morning. Welcome to the Guaranty Bancshares, Inc. 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, and Shalene Jacobson, Executive Vice President and Chief Financial Officer. To begin our call, I will now turn it over to our CEO, Ty Abston.
Ty Abston: Thank you, Nona. Good morning, everyone. Welcome to our earnings call for Q1 2025. Guaranty Bancshares, Inc. achieved good results in the first quarter this year. I am 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 is 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 have 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 have seen it in the last three years. So we will see how the quarter turns out. Our net interest margin continues to build, and we are 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 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 am going to turn it over to Shalene to go through the investor deck, and then we will answer any questions you have.
Shalene Jacobson: Thanks, Ty. I will start today with the balance sheet. 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 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. Overall, 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 pretax decreased from $20.8 million at December 31st to $14.7 million on March 31st, which was an improvement of about $6 million. Of course, you know, we are not sure exactly where that is 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 book 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. We are 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. Onto the income statement. 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 the first quarter of 2024 and the linked quarter, we continue to have good improvements in net interest income. While noninterest income was down and net interest noninterest expense was a bit higher, which I will 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 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 loan 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 have mentioned this in the past few calls, that we have 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 is that, aside from our $263 million in loans that float daily, we also have about $341 million in variable 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 $341 million reprice according to their current loan terms and balances, 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 certificates of deposit that are repricing between April 1st and year-end. They currently have a weighted rate of 4.224%. 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. Noninterest income decreased by $693,000 during the first quarter compared to the fourth quarter. This is primarily the result of elevated noninterest 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 escrow 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 2024 and the first quarter of 2024. That is 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. You will see an elevated debit card income during the second quarter of last year. Noninterest 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 is related to our year-end employee bonus. That is paid at the end of January. Both of those expenses accounted for about $575,000 of the linked 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 overaccrued 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 cost to be lower in subsequent quarters and also more consistent. Finally, our efficiency ratio this quarter was 66.78%. Alright. 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 have 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 are really hoping we can get that going here soon. Nonperforming assets continue to remain at very low levels. Our NPAs to total assets were 0.15% at March 31st compared to 0.16% at year-end. The nonperforming assets include both ORE and nonaccrual 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 nonaccrual loans were up slightly, to $4.8 million from $3.7 million as of year-end. That represents 0.23%, less than a quarter of a percent of our total loans. The increase is primarily due to one single-family loan borrower that we are working on a solution for. We do not expect any losses on that loan. It is 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 did not change our qualitative factors at all. The decrease is 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%.
Ty Abston: So
Shalene Jacobson: 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. Alright. On to deposits, liquidity, and capital. So 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. Noninterest-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, Guaranty Bancshares, Inc. 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 Guaranty-owned accounts. And insured deposits were 26.7% of total deposits at quarter-end. As Ty mentioned and I mentioned previously, our liquidity right now is great. We are 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 will either use for loan growth or to reinvest in securities or cash. We also have total contingent liquidity of about $1.3 billion that is 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 remain 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 a $0.25 per share dividend, and we also repurchased 127,537 shares of Guaranty 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 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.
Ty Abston: Thank you, Shalene.
Nona Branch: Our first question is from Woody Lay with KBW. Woody, can you unmute your line?
Woody Lay: Hey. Good morning, guys. Can you hear me?
Ty Abston: We hear you. Good morning, Woody.
Nona Branch: Morning.
Woody Lay: Hey. I wanted to start on the loan pipeline. It is encouraging to hear it is kind of at a multiyear high. Any color on the mix of the portfolio of the pipeline and how that compares to the loan portfolio today?
Ty Abston: Woody, it is similar to the current composition loan portfolio. It is really across our footprint and really all four of our regions. It is pretty granular, you know, like our portfolio. But, you know, we just, you know, really after the November election, we just started seeing a really strong uptick in opportunities that made sense to loan opportunities across our footprint, and we continue to see that. That is probably muted some in the last couple of weeks, which makes sense. But, you know, as we said today, you know, we have a very strong pipeline, and we will just see how that plays out. But that is we are really pleased with kind of where we are with the pipeline as of today.
Woody Lay: Yeah. And then, you know, as you talk to your clients and try to get a sense of, you know, when a sense of timing on when they could, you know, execute on these loans. And in your opening comments, you made a comment about how the Texas markets are really strong. It is kind of the national uncertainty. I guess as you talk to your clients, like, what are they looking forward to get comfortable in this current environment?
Ty Abston: Well, I mean, I think they are, Woody, like the rest of us. I mean, there is just uncertainty. If you do not turn on CNBC, they are not seeing anything in our local markets that are really, you know, concerning at this point. But like everyone else, they look and see what is happening on the national scene, and that changes, you know, their views. So I think everyone is just kind of on standby trying to see how this plays out. But assuming this gets, you know, this whole issue with tariffs gets resolved, then, you know, the Texas economy is strong and robust and growing, and that should resume, and I anticipate that will resume once that happens. But everyone, like I said, is in the same boat. I mean, we are just trying to kind of see how this plays itself out. But I think the overall underlying economy is strong, and that is really the thing we can focus on from our company standpoint. We really do not bank a lot of multinational companies, obviously, so direct impact, we have been looking at that. We do not see any direct impacts from tariffs, assuming we stay on this track. There would certainly be indirect impacts on the overall economy and our customers. But we do not see we have not identified any direct impacts at this point.
Woody Lay: Got it. And then last for me, just touching on the reserve. You know, I think you called out that if we were to get clarity on the economy, you would expect some reserve release. But, you know, assuming we are in the same position we are today, you know, 60 days from now, would you expect to build reserves just based on, you know, where the Moody’s forecast is trending and any color there?
Ty Abston: Yeah. Woody, I would not expect to build reserves. I mean, we are still carrying effectively some of the COVID factors, and we kept those in from two years ago when we had some bank failures. So we would not remove those. But continuing those, I could see that if things are currently where they stand. I mean, it would take a pretty, you know, large systemic concern for us to, you know, increase our factors based on kind of where we see the quality of the loan portfolio and again, just the overall economy in Texas.
Shalene Jacobson: On to that too. I mean, we have kept our qualitative factors at elevated levels because we wanted to be more conservative. And each time we started thinking about, you know, unwinding some of those economic factors that we put in, based on, you know, situations, a new event would happen. It started with COVID, and then it was the bank failures. And then there was, you know, the election, and now these tariff uncertainties. And so we have kind of just left those economic factors at elevated levels throughout instead of unwinding them like some of our peers did. But at some point, you know, if we start getting some certainty, then we will look at unwinding those a little bit. Like Ty said, we do not anticipate increasing them.
Woody Lay: Got it. Alright. Thanks for taking my question.
Shalene Jacobson: Sure, Woody. Hi. Our next questions will be from Matt Olney with Stephens. Matt, can you unmute your line?
Ty Abston: Yeah. Thanks. Good morning, guys. Good morning, Matt.
Nona Branch: Morning, Matt.
Matt Olney: On the loan balances, Ty, you highlighted the stronger loan pipelines, which is good to see. Within the Q1 loan balance, I guess it was the C&I mix that drove the contraction. Any more color on that C&I book? Were these company sales? Was it lower utilization? Just any color you can give us on that portfolio.
Ty Abston: It was really lower utilization. We just saw some paydowns in some of those C&I lines. Nothing specific. It just, in that, could very likely reverse itself, but we just, for the quarter, we saw net paydowns in some of the utilization of lines.
Matt Olney: Appreciate that. And then I guess switching gears on the deposit side. We saw some positive deposit growth in the first quarter. I think most of your peers are still seeing some deposit contraction in the first quarter. Any color on kind of what you saw in Q1 and appreciate any kind of commentary you may have for deposit growth for the full year.
Ty Abston: Yeah. I mean, we continue to view core deposits as really key to franchise value in our company, and so that is a big part of our model to focus on core deposit relationships. And we will open 10,000 checking accounts this year like we have every year for several years. So it is just a big part of our model to focus on core deposits across our footprint. In every market we serve, we are paying kind of mid-tier on rates. We are not the lowest rate in the markets. We are not the highest. So they are really relationship-based deposits, and again, it is just, you know, I would anticipate we are probably going to see a 2% to 5% kind of net growth in the deposit book for the year. Because it is just a big part of our model to grow core deposit relationships. And but do so in a very granular way as we kind of outlined.
Matt Olney: Thank you for that, Ty. And then I think on the prepared remarks, I think it was Shalene that mentioned expecting some pretty good cash flows on the securities portfolio for the rest of the year. There is $116 million. Would just love to hear any kind of preliminary thoughts you have on what the plan is for those cash flows and what you could do.
Ty Abston: We, I mean, our plan is to continue to add to the bond portfolio as it makes, you know, as we see that there are opportunities to add to that. In sort of a dollar-cost averaging method as we have done the last three years, we are sitting with about 5% of the balance sheet in Fed funds, so we have a lot of liquidity available to grow the loan book and/or add to the bond portfolio, but we are doing so, you know, in a systematic way each month. And, again, we have been doing that, and that has also helped our bond portfolio, excuse me, total yield, and we have gains in bonds because we have been able to add the last three years with our liquidity. There have been some bond market disruptions in the last few weeks, as everyone knows, and we were able to step in and buy some bonds during that period as we had some really, you know, attractive pricing. So our plan will be to continue to kind of do that each month in just a systematic way like we have been doing.
Matt Olney: Okay. Well, balance sheet liquidity looks great. So, thanks for taking my questions.
Ty Abston: Sure, Matt.
Nona Branch: Okay. Our next questions are from Michael Rose with Raymond James. Michael, can you unmute?
Michael Rose: I am. Can you guys hear me?
Ty Abston: Yes, Michael. Good morning.
Nona Branch: Hi. Good morning.
Michael Rose: Thanks for taking my questions. Maybe just to start on credit, you guys have obviously always done a really good job if I look back in history. But, you know, the longer this goes on, there is probably some risk. So what are some areas of the portfolio that you guys are maybe doing a deeper dive on and maybe some lessons learned from COVID? Thanks.
Ty Abston: I mean, like I mentioned, we are looking at any customers we had that could have a direct impact from tariffs, any manufacturing customers we have, and just trying to game out any kind of concerns they would have. I mean, at this point, I mean, we do not see anything that concerns us. Again, I think the granularity of our loan portfolio is a big part of the strength of our model. And we just do not have, you know, outsized positions in many credits or in one particular sector or one particular region of the state. And so we are concerned if this, you know, if it stays on this negative track for an extended period, and the impact it would have on the national economy that ultimately would be the Texas economy and ultimately would be the markets we are in. That is no different than COVID or any other economic event that we have all, you know, faced, but, you know, we are very confident in the strength of our portfolio, the strength of our underwriting, and the quality of our customer base. We have, you know, very resilient companies that we do business with. Some of them we have done business with for multiple decades. They have been through multiple cycles, economic cycles, and they are well-positioned themselves to adjust. We do not have, you know, again, a lot of exposure to multinationals that have a direct impact, but certainly would have an indirect impact if, you know, this self-inflicted, you know, economic event happened in a way that damaged the economy overall, then we would certainly adjust to that based on what we saw in the environment they were operating in. But ahead of them right now, nothing specific, but we are certainly being prudent and cautious in watching everything we can to anticipate what may come down the pipe.
Shalene Jacobson: Michael, we also included some additional information in the quarterly highlights of the earnings release that talked about the granularity of our two largest loan segments, CRE and real estate one to four. That can also comment on, you know, the next couple down. Our real estate construction loans, we have about 650 of those with an average balance of $357,000. So it is pretty low. And then, you know, Matt, this manager you, but our C&I loans, we have 1,562 C&I loans, and they have an average balance of $139,700. So again, you know, our loan portfolio, we have got a lot of, you know, fairly low average balance loans. And so, you know, if we do have those risks that pop up, there is not as much damage hopefully.
Michael Rose: I appreciate the color. Just switching gears, you guys stepped up the buyback a little bit this quarter. I think last quarter, you mentioned that you could exhaust the authorization. I think you have about 950,000 shares left at the end of the first quarter. I think the program expires in April of 2026, so about a year from now. Just can you discuss your appetite? You know, obviously, banks have, you know, most bank stocks are down. You guys are one of the few that is actually up year to date. So can you just kind of discuss the ability and the willingness to repurchase shares? Thanks.
Ty Abston: So, Michael, yes. I mean, like I mentioned in the fourth quarter, I mean, we do consider that to be a good utilization of our excess capital, and our balance sheet has not been, we have not grown our balance sheet intentionally the last two or three years, really. So as we are creating excess capital, and we see, you know, we see opportunities to buy our stock back. We just think that is a good utilization of resources. We are not in the market currently. We were at the beginning of the quarter. But we certainly plan if we see, you know, the opportunity to buy our shares back, and that is kind of a capital allocation priority for us. Would continue to be through that plan period.
Michael Rose: Helpful. And maybe just last one for me. Certainly understand and appreciate the comments on expenses this quarter. You guys have previously talked about a 2.5% expense to average asset ratio. Is that kind of still what you are targeting and assuming the revenue or the loan growth does not come through, like, we all hope, you know, how much flex is there on the downside if the revenue does not come through? Thanks.
Ty Abston: I mean, Michael, yes. 2.5% to average assets has always been, probably 20 years, has been kind of our bogey. That creates a nice ROA, you know, kind of going through the math. But there are times we went above that. There are times we have been 2.6, 2.7. There are times we have been 2.3, 2.4. So we are not married to it in the sense that we will make short-term decisions versus making long-term investments in the growth of the company. But that is our speed limit, and we try to stay within that and always will. There are times we will fluctuate above or below it. With our margin, obviously, where it is and how it is building, we have some more flexibility there to continue to hit our earnings goals. And be above that a little bit. But you will never see us materially move above or below that 2.5% bogey as a goal.
Michael Rose: Alright. Thanks for taking my questions.
Ty Abston: Absolutely, Michael.
Nona Branch: Thank you. Thank you for your questions. I would like to remind everyone that the recording of this call will be available by 1 PM today on our investor relations page at gnty.com. Thank you for attending, and this concludes our call. Have a good day.