Q3 2023 Guaranty Bancshares Inc Earnings Call

Speaker 1: Good morning and welcome to guaranteed bank share third quarter 2023 earnings call. My name is Nona Branch and I will be your operator for today's call. I would like to remind everyone this call is being recorded after our.

Good morning.

And welcome to guarantee Bancshares' third quarter 2023 earnings call.

My name is known a branch and I will be your operator for today's call.

I would like to remind everyone. This call is being recorded.

After our prepared remarks, we will have a Q&A session.

Speaker 1: Our host for today's call will be Ty Abston, Chairman and Chief Executive Officer of the company. Kathy Payne, Senior Executive Vice President and Chief Financial Officer of the company.

Our hosts for todays call will be tie Ashton Chairman and Chief Executive Officer of the company Kathy Payne Senior Executive Vice President and Chief Financial Officer of the company.

Speaker 1: Sheleen Jacobson, Executive Vice President and Chief Financial Officer of the bank. To begin our call, I will now turn it over to our CEO , Tyia.

Schilling Jacobson executive Vice President and Chief Financial Officer of the Bank.

To begin our call I will now turn it over to our CEO Tae Austin.

Thank you.

Speaker 2: Thank you, Nona. Good morning, everyone. And again, welcome to our third quarter earnings call. We did issue press release this morning that kind of went over our quarter. And in a lot of detail, we do have a presentation that capping Chilene are going to go through to give a little more color on the quarter and kind of operations. And then we'll open up to q&a afterwards. Happy

Morning, everyone and again welcome to our third quarter earnings call. We did issue a press release this morning that Doug.

I kind of went over a quarter and a lot of detail. We do have a presentation that cabin schlater gotta go through to give a little more color on the quarter and kind of our operations and then we'll open it up to Q&A afterwards.

Afterwards.

Yeah.

Speaker 3: All right, thank you, Ty. We'll take a quick look at the balance sheet and the income statement here as I talk through the details. Looking at the balance sheet, total assets ended the quarter at $3.2 billion. That remained pretty consistent from the linked quarter. We did show a small increase or an increase for the quarter in total assets of $24 million.

Alright, Thank you die.

Well take a quick look at the balance sheet and the income statement here and if I as I talk.

Through the details looking at the balance sheet total assets ended the quarter at $3 2 billion that remain pretty consistent from the linked quarter. We did show a small increase or an increase for the quarter and total assets of $24 million.

Speaker 3: For the year 2023, assets are down about 120 million. That's 3.7%. That decrease mainly is reflected in our bond portfolio. It's down 110 million since the beginning of the year. We had some short-term treasuries that we bought, about 65 million that matured, and about 25 million in called or matured munis during the year.

For the year 2023 assets are down about $120 million, that's 3.7% that decrease mainly as reflected in our bond portfolio.

It's it's down 110 minutes at the beginning of the year, we had some short term treasuries that we bought about $65 million that matured.

$25 million and called or matured munis during the year.

Speaker 3: So looking at loans, which obviously is a bigger bulk of our assets, they were $2.3 billion.

So looking at loans. So it's obviously the bigger bulk of our.

Assets, they were $2 3 billion.

Speaker 3: At the end of Q3, they did decrease for the quarter about 16 million.

At the end of Q3, they did decrease for the quarter of about $16 million.

Speaker 3: And year to date, they're down about 60 million. We address in the earnings release, I don't know what our thought is in that regard, just in broad terms, in that we've tightened our credit underwriting as most banks have. And of course, with higher rates, loan demand has softened some.

And year to date, they're down about $60 million, we addressed in the earnings release.

I don't know what our thought is in that regard just in broad terms and that we've tightened our credit underwriting as most banks have and of course with higher rates loan demand has softened some.

Speaker 3: The bulk of that 60 million dollar year-to-date decrease I mentioned is in the construction and development bucket.

The bulk of that $60 million year to date decreased I mentioned is in the construction and development bucket.

Just FYI.

Speaker 3: Deposits increased 55 million on the liability side. That's about 2% to 2.7 billion.

Deposits increased $55 million on the liability side, that's about 2% to $2 7 billion.

Speaker 3: And it's a, and they're a $23 million decrease since beginning a year. As we have had for the last 12 months, actually, a continual shift in deposits into interest-bearing deposits are, are, are still our DDA deposits are sitting at 34% of total deposit.

And it's a.

There are $23 million decrease since the beginning of year as we've had for the last 12 months actually a continual shift in deposits into interest bearing deposits are.

Still I D.

DDA deposits are sitting at 34% of total deposits.

Speaker 3: Shalanda gave a little more detail on the deposits here in just a minute.

Chilean and gave them a little more detail on the deposits here in just a minute.

Speaker 3: Our equity capital remains strong. We ended the quarter at 296.8 million.

Our equity capital remains strong we ended the quarter at $296 8 million.

Speaker 3: That's 9.2% of average assets, and it's a TCE, a tangible common equity ratio of 8.21%.

That's.

Nine 2% of average assets and it's a TCE.

Tangible common equity ratio of 821% down.

Down about eight basis points.

Speaker 3: If you're looking at our change of our capital, the decrease of during the quarter, we had earnings of 6.3 million.

Looking at our change of our capital did decrease during the quarter, we had earnings of $6 3 million.

Speaker 3: As far as capables concerned that was all set by somewhat all set by an increase in our unrealized Lawson or bones, which is our AOC eye of three million and then we did pay a $2.7 million dividend during the quarter and Repurchase company stock of about 1.7 million that's 61,688 shares during the quarter

And as far as capital is concerned that was offset by somewhat offset by an increase in our unrealized.

Loss on our bonds, which is our Aoc at a $3 million.

And then we did pay a $2 $7 million of dividend during the quarter and repurchase company stock of about $1 7 million that 61688 shares during the quarter.

Speaker 3: That means here today we bought back a repurchased 410,000 shares and that's 3.4% of shares outstanding.

That means year to date, we bought back <unk> repurchased 410000 shares and Thats three 4% of shares outstanding.

Speaker 3: Again, looking at that dividend, again, we pay a pretty consistent dividend, it annualizes out to 92 cents a share for the year. That's up from 88 cents last year, which is a 5% increase in the yield that the day's prices over 3, 3, 2, 5%.

Again looking at that dividend is again, we pay a pretty consistent dividend and annualize out to 92 cents a share.

For the year, that's up from 88 last year, which was a 5% increase in the yield at today's prices over 3% to 5%.

So then turning to the income statement.

Speaker 3: Our Q3 net earnings were 6.3 million. That's 54 cents per share.

Our Q3 net earnings were $6 3 million, that's 54 cents per share.

Speaker 3: There's there really were no extraordinary items in the quarter. So this would be our core earnings So if you compare that

There really were no extraordinary items in the quarter. So this will be our core earnings <unk>.

So if you compare that.

Uh huh.

Speaker 3: this quarter, Q3 to the core earnings of Q2, they're down about 1.2 million. That's gonna be driven by lower, mainly by lower net interest income of 1.4 million.

This quarter Q3 to the core earnings of Q2, they are down about $1 2 million.

It's going to be driven by lower mainly by lower <unk>.

Net interest income of $1 4 million.

Speaker 3: and lower non-interesting income, about 250,000 when you compare it to the core non-interesting income of Q2.

And lower non interest income of about 250000, when you compare it to the core noninterest income of Q2.

Speaker 3: But I'm going to take a little bit of dive and look into the components of the margin because that's obviously the major decrease from the prior quarter. And it is a variance from what consensus projections had out.

So I thought I'd take a little bit of dive and look into the components of the margin because that's it's obviously is a major decrease from the prior quarter.

And it is.

A variance from what consensus projections.

Had it out there.

Speaker 3: And looking at the averages table in the earnings release, Q3 compared to Q2 are interest varying deposit average balance increased.

And looking at the.

Averages table in the earnings release Q3, compared to Q2, our interest bearing deposit average balance.

Increased $72 million.

Speaker 3: Almost all of that increase is due to an increase in time money. See these, which obviously has a higher costing deposit.

Almost all of that increase is due to an increase in time money Cds.

Which obviously has a higher costing deposit.

Cost.

Speaker 3: On that same averages, balance and yield table are non-interest bearing or DDA, checking accounts, decrease 60 million. And then our money market accounts are non-interest bearing, are non-matureing interest bearing remain pretty steady.

On that same averages balance and yield stable, our non interest bearing DDA checking accounts decreased $60 million.

And then our money market accounts or our non interest bearing.

Our non maturing interest bearing remained pretty steady.

Speaker 3: So both the DDA and the money market balance accounts were affected in part by decrease in our public fund money of $2 million for the quarter, which is typical for Q.

So both the DVA and the money market balance accounts were affected in part by decrease in our public fund money of $2 million for the quarter.

Which is typical for Q3 activity.

Speaker 3: I looked him back at the cost of that interest bearing deposit related to those that time deposit activity. I mentioned the yield on interest bearing accounts was 3.0% for the quarter. And that's compared to 2.41% for the linked quarter.

Now looking back at the cost of that interest bearing deposit related to those that time deposit activity I mentioned the yield on interest bearing accounts was three <unk> percent for the quarter.

And thats compared to 241% for the linked quarter.

Speaker 3: A little more than what we, I increased in what we're projected, but that's obviously affected by that shift in deposits. And of course higher sea rates, but again, most of all of that increase came in that time to public category.

A little more than what the witness increase than what we projected but that's obviously affected by that shift in deposits and of course higher fee rates, but again, most almost all of that increase came in and that time deposit category.

Speaker 3: If you look at our total cost of deposits, including the DDA bounces.

If you look at our total cost of deposits, including the DDA balances.

Speaker 3: For the quarter, it was 1.98%, which is up 45 basis points from the length quarter when it was 1.53.

For the quarter was $1 nine, 8%, which is up 45 basis points from the linked quarter when it was 1.53%.

On a one one note you will see on the earnings release and when you look at the detail the increase costing liabilities is being somewhat offset by rising rates in our loan book.

Speaker 3: And one note you'll see on the earnings relapse, when you look at the detail, the increase in costing liabilities is being somewhat offset by rising rates in our loan books.

Speaker 3: and other assets too, but looking at other earning assets, but looking at the loan yield, it increased 21 basis points from length quarter and 85 basis points year over year. We have a relatively short average life in our loan portfolio, so we expect to see that

And other assets too, but looking at other earning assets, but looking at.

The loan yield increased 21 basis points from linked quarter, and 85 basis points year over year.

We have a.

Relatively short average life and our loan portfolio. So we expect to see that quarter.

Speaker 3: quarterly increase in that category speed up in the coming quarters as interest rates continue to stay higher for longer. And we have the opportunity to reprise those loans.

Quarterly increase in that category speed up in the coming quarters as interest rates continue to stay higher for longer.

And we have the opportunity to reprice.

Loans in the coming quarters.

So all of that equates to our net interest margin being decreased about.

Speaker 3: So all that equates to our net interest margin being decreased about 17 basis points. From the last quarter, it was 3.19% and in Q3 this quarter, it is 3.02.

17 basis points from last quarter. It was $3, one 9% and in Q3 this quarter. It is three 2%.

Speaker 3: I mentioned briefly our non-interesting come, our core non-interesting come decreased about 250,000 from linked quarters, core non-interesting come. That's about 5%. That's almost all of that is due to lower volume related to the gain on cell of loans.

I mentioned briefly our noninterest income our core noninterest income decreased about 250000 from linked quarters core noninterest income at about 5%. That's S. Almost all of that is due to lower volume related to the gain on sale of loans.

Speaker 3: of both in the secondary market and SBA activity.

Both in the secondary market and SBA activity.

Expenses are detailed on the earnings release for you there very flat for the quarter.

Speaker 3: Expenses are detailed on the earnings release story. They're very flat for the quarter. And that made our efficiency ratio increase or all those components made our efficiency ratio increased to 72.5% for the quarter.

And that made our efficiency ratio increase or all of those components made our efficiency ratio increased to 72, 5% for the quarter.

So I'll turn it over to Selene and she has a few comments about the.

Speaker 3: I'll turn it over to Shaleen and she has a few comments with that. Little portfolio and.

Loan portfolio in.

Capital and liquidity.

Speaker 1: Yes, thank you, Kathy. As Kathy mentioned, lens are down about 15.7 lens this quarter, primarily in our construction and development portfolio as this project that has been on our books for a while are moving to permanent financing where they're paying off. Overall, lending has slowed down as we've tightened underwriting standards and borrow would demand is lower as a result of higher interest rate.

Yes, Thank you Kathy.

As Kathy mentioned lines are down about $10 7 million this quarter.

Clearly in our construction and development portfolio.

It's been on our books for a while or moving to permanent financing or they are paying off.

And overall lending has slowed down as we've tightened underwriting standards and borrower demand is lower as a result of higher interest rates.

Speaker 4: However, we did originate about 76 million in new loans during the quarter with an average rate of 8.49%. So new loan yields are strong. Our non-performing assets continue to remain at historically low levels at 0.09% of total assets for the quarter compared to 0.11% in the prior quarter.

However, we did originate about 76 million in new land during the quarter.

With an average rate of 849% so new loan yields are strong.

Our nonperforming assets continued to remain at historically low levels that 0.09% of total assets for the quarter compared to 0.11% in the prior quarter.

Speaker 4: And charge off felt to remain low at 619,000. And we had a net charge off to average loan ratio of 0.11%.

And charge offs also remained low at 619000, and we had a net charge off to average loans ratio at 0.11%.

Commercial real estate and office related bonds continue to be a hot topic, but we manage our content and those areas very well, we've got a diverse portfolio and we really don't have any significant concerns in those areas right now.

Speaker 4: Commercial real estate and office related loans continue to be a hot topic, but we manage our constant trends in those areas very well. We've got a diverse portfolio when we really don't have any significant concerns in those areas right now.

Speaker 4: CRE represents about 38.9% of our total loan portfolio. And of that 38.9%, 4.7% is office-related CRE. But the average loan balance on that office CRE is 523,000. So it's primarily mom and pop office type buildings instead of the larger commercial office development.

<unk> represents about 38, 9% of our total loan portfolio and of that 38, 9% four 7% is office related to CRE.

But the average loan balance on that office CRE is 523000, so it's primarily mom and pop office type buildings instead of the larger commercial office development.

Speaker 4: We did have an increase in substandard loans during the quarter of 21.4 million. However, total substandard loans still represent only 1.3% of the total loan portfolio.

We did have an increase in substandard loans during the quarter of $21 4 million.

However, total substandard loans still represent only one 3% of the total loan portfolio.

The increase results primarily from two loans, one know how to balance that or has a balance of $14 5 million and the other with a balance of $6 9 million.

Speaker 4: The increased results primarily from two loans, one that had a balance or has a balance of 14.5 million and the other with a balance of 6.9 million. Those of those loans are currently performing. They both have low LTPs and at this time, we expect minimal to no losses as we work through with two credits.

Both of those loans are currently performing.

Have low ltvs and at this time, we expect minimal to no losses as we work through it.

<unk>.

Overall, the quality of the portfolio really does remain strong we do expect some potential challenges in the coming months, but we continue to believe that our borrowers and our overall credit metrics will continue to benefit from the good tailwind that we have here in Texas.

Speaker 4: Overall, the quality of the portfolio really does remain strong. We do expect some potential challenges in the coming months that we continue to believe that our borrowers and our overall credit metrics will continue to benefit from the good tailwinds that we have here in Texas compared to some other geographic areas.

Compared to some other geographic areas.

Our quarter end ACL coverage is 123, 4% of total loans.

Speaker 4: Our quarter end ACL coverage is 1.34% of total loan.

Speaker 4: We did not have a provision for credit losses during the third quarter. Our qualitative factor adjustments that we've made in previous quarters within our seasonal model are still relevant today. And the decrease in our loan portfolio has allowed us to not need additional provisions as quarter.

We did not have a provision for credit losses during the third quarter.

Qualitative factor adjustments that we've made in previous quarters within our seats. Our model are still relevant today and the decrease in our loan portfolio has allowed us to not need additional provisions this quarter.

On to deposits.

Speaker 4: As Kathy mentioned, deposits grew every month during the quarter and we ended the quarter with an increase of 55.5 million. Respect to overall deposit risk, Guarantee has a very granular and historically stable core deposit base.

As Kathy mentioned deposits grew every month during the quarter and we ended the quarter with an increase of $55 5 million.

With respect to overall deposit risk guarantee has a very granular and historically stable core deposit base.

Speaker 4: At quarter end, we had more than 87,000 deposit accounts with an average account balance of only $30,482.

And we had more than 87000 deposit accounts with an average account balance of only $30482.

Speaker 4: And our uninsured deposits are also relatively low, excluding public funds and guarantee owned accounts, uninsured deposits for 25% of total deposits at quarter end.

And our uninsured deposits are also relatively low excluding public funds and guarantee and accounts and.

Insured deposits for 25% of total deposits at quarter end.

Speaker 4: Our launch to deposit ratio continues to improve as deposit balances increase and low balance to decrease. Our ratio was 87.2% in the third quarter compared to 89.7% in the second quarter and 20, I'm sorry, 90.6% in the same quarter in.

Our loan to deposit ratio continues to improve as deposit balances increase and loan balances decreased.

Our ratio was 87, 2% in the third quarter.

Compared to 89, 7% in the second quarter.

And 'twenty I'm, sorry, 96% in the same quarter.

In 2022.

Speaker 4: Although down some prior quarter, Kappy mentioned non-interesting deposits still represent 30% of total deposits. We expect that ratio to continue to move down towards our historical pre-pandemic average, which was more in the mid to high 20.

Although down from the prior quarter, Kathy mentioned noninterest bearing deposits still represent 34% of total debt.

We expect that ratio to continue to move down.

Towards our historical pre pandemic average, which was more in the mid to high twenties.

And as far as the deposit betas.

Speaker 4: And as far as the deposit betas, they work high again in third quarter, but we don't anticipate any more large increases in deposit rates for the remader of this year. Some deposits will continue to reprise a CD's mature and renew into higher yielding and higher rate CDs. And some of the customers will continue to move from non-intersparing to intersparing accounts. However, we really do expect deposit betas to be much lower in the fourth quarter.

Hi, again in third quarter, but we don't anticipate any more large increases in deposit rates for the remainder of this year. Some deposits will continue to reprice as Cds mature and renew into higher yielding or higher rate Cds.

And some of the customers will continue to move from noninterest bearing to interest bearing accounts. However, we really do expect deposit betas to be much slower in the fourth quarter.

Our liquidity is good we ended the quarter with a liquidity ratio of 14% and we used our cash flows from the church securities and loans to pay down federal home loan bank advances by about $20 million during the quarter also.

Speaker 4: liquidity is good. We ended the quarter with a liquidity ratio of 14% and we used our cash flows from matured securities and loans to pay down federal home loan bank advances by about $20 million during the quarter and we also purchased some small amounts of mortgage-backed security that at higher yields during the quarter as well.

Protest them.

Some small amount of mortgage backed securities at higher yields during the quarter as well.

Speaker 4: We have contingent liquidity of about 1.5 billion available through either federal homo bank advances, federal reserve bank programs, and other correspondents said suns lines and lines of credit.

We have contingent liquidity of about 1.5 billion available through either federal home loan Bank advances Federal Reserve Bank programs.

Other correspondent fed funds lines and lines of credit.

Speaker 4: Our total net unrealized losses on investment securities remains reasonable at $55.3 million of which $24.7 million is related to our AFS securities and included within our AOC on the balance sheet.

Our total net unrealized losses on investment Securities remains reasonable at $65 3 million of which $24 7 million is related to our <unk> securities and included within our AFC eye on the balance sheet.

Speaker 4: Capital is also strong. As Kathy mentioned, we use some of our excess capital in the third quarter to repurchase Sheriff's Guarantee Stock and add intrinsic value to our shareholders.

Capital is also strong as Kathy mentioned, we used some of our excess capital in the third quarter to repurchase shares and guaranteed stocking at intrinsic value to our shareholders.

Speaker 4: We repurchased 61,88 shares and average price of 27 to 38 cents.

We repurchased 61088 shares an average price of 27% isn't 38 cents.

Speaker 4: And then finally, with respect to the declines I just mentioned in the fair value of investment securities, even if we had to liquidate the entire portfolio, which we certainly don't expect to do or anticipate doing, our total equity to average assets ratio will remain pretty good at 8.2%. Right now it's 9.2%.

And then finally with respect to the declines I, just mentioned and the fair value of investment Securities.

Even if we had to liquidate the entire portfolio, which we certainly don't expect to do or anticipate doing our total equity to average assets ratio will remain pretty good at eight 2% right now it's nine 2%.

And that concludes our prepared remarks, so I will turn it back over to know now for Q&A.

Speaker 4: That concludes our prepared remarks, so I will turn it back over to Nona for Q&A.

Speaker 1: Thank you, Shillane. It is time for our Q&A session. Our first question today will be from Kim Mitchell with Raymond Jay.

Thank you Shelly.

The time for our Q&A session. Our first question today will be from Jim Mitchell with Raymond James.

Speaker 2: Hey everyone, good morning. Thanks for taking my questions today. I appreciate the color there on the end of this quarter. Obviously, it's getting pretty close to that 3% level. You've been talking about staying above through the cycle. So I just kind of get to how things develop this quarter. Could you talk about where you think them goes from here?

Hey, everyone. Good morning, Thanks for taking my questions today.

I appreciate it appreciate the color there and then this quarter, obviously, it's getting pretty close to that 3% level you have been talking about staying above through the cycle. So I guess kind of get to how things develop this quarter could you talk about where you think NIM goes from here.

Oh I'll take that Tim.

Speaker 3: Our modeling has projected out that we'll stay right at 3%, I think what will affect that more than anything is the mix of the deposits, as I said.

Our modeling has projected that that will stay right at 3% I think what'll, what will affect that more than anything is the mix of the deposits as I said basically all of the increase came in the time deposits last quarter.

Speaker 3: Basically all the increase came in the time deposits the last quarter. We've got modeling that says that we can pretty well keep it near the 3%. We were confident that the pace of increase in rates is really gonna slow down in Q4 from what we did in Q2 and Q3 for that matter. So.

We've got modeling that would say is that we can pretty well keep it near the 3%.

We were confident that the pace of increase in rates is really going to slow down in Q4 from what we did in Q2 and Q3 for that matter. So we.

Speaker 3: We can control the deposit rates somewhat, what we don't control so much is the mix. So we'll see how that lays out. But our modeling has us right at near the 3%, whether we go below it just a little bit maybe, but certainly not much.

We can control the deposit rates somewhat what we don't control so much as the mix. So we'll see how that lays out but our modeling has us right at near the 3% where do we go.

<unk>, just a little bit maybe but.

Certainly not much.

Awesome.

Speaker 2: And I guess next on the loan growth front, loan ver, download a bit this course, which is kind of consistently, you've been talking about previously, being comfortable with, you know, kind of letting the balance sheet shrink a little bit. I guess that remains true moving forward for the rest of the year. And then how do you think about loan growth going into 2024 if we say elevate it for longer?

But I guess next on the loan growth front.

Down a little bit this quarter, which was kind of consistent with what you've been talking about previously getting comfortable with the kind of on the balance sheet shrink a little bit I guess that remains sure moving forward for the rest of the year and then how do you think about loan growth going into 2024, if rate stay elevated for a longer.

Speaker 2: Hey, Tim, this time I think low growth in 24 is going to be muted. I would say would it be low single digit invest just with higher rates. Think economic activity is going to be slower as we would all expect.

Hey, Tim This type I think loan growth in 'twenty four is going to be muted I would say it would be low single digit at best just with higher rates like economic activity is going to be slower as we would all expect.

Speaker 2: So that's kind of how we're starting to kind of put together our modeling for 24 and budget for 24, but that's kind of how we're going to look next year.

So that's kind of how we're starting to kind of put together our modeling for 'twenty for budget for 'twenty four but that's kind of how we're gonna look next year.

Awesome.

Speaker 5: Awesome. I'm gonna just lastly for me, buybacks took a step back this quarter from second quarter levels. I'll just curious you discuss the rationale behind the more muted activity, and then how you think about repurchase activity moving forward.

Lastly for me buybacks took a step back this quarter from second quarter levels.

I was just curious you discuss the rationale behind the more muted activity.

You think about repurchase activity moving forward.

Speaker 2: I mean, likely said in the past, it's a capital out priority for us when it hit for metrics on valuation. And we did not buy as much stock back this last quarter just because the process, you know, stronger than and had been previous quarters during the year. But as we see opportunities to buy back stock at lower valuations, we certainly will.

I mean like we've said in the past, it's it's a it's a capital our priority for us when it hits for matrix on valuation and we did not buy as much stock back this last quarter, just because the price was.

Stronger than it had been previous quarters during the year, but.

As we see opportunities to buy back stock at lower valuations, we certainly will.

Speaker 5: Perfect. Awesome. Well, thank you guys for taking my questions. I'll hop out again. Thanks to him.

Perfect Awesome. Thank you guys for taking my questions I'll hop out.

Thanks, Tim.

Speaker 1: Our next question today is from Graham <expletive> with Piper Sandler.

Our next question today is from Graham <expletive> with Piper Sandler.

Nona Branch: Good morning, and welcome to Guaranty Bancshares' third quarter, 2023 Earning Call. My name is Nona Branch and I will be your operator for today's call. I would like to remind everyone this call is being recorded.

Hey, everybody good morning, good morning, Graham Graham.

Speaker 6: So I just, I kind of wanted to circle back to the name just quickly and just get some more color on a couple of things. So the loan yields, I mean, they're out 25, 26, 24, over 20 basis points of the last three quarters.

So I just I kind of wanted to circle back to the NIM just quickly and just get some more color on a couple of things.

Nona Branch: After our prepared remarks, we will have a Q&A session.

So the loan yields they're up 'twenty five 'twenty six 'twenty for over 20 basis points over the last three quarters.

Nona Branch: Our house for today's call will be Ty Aston, Chairman and Chief Executive Officer of the company, Kathy Payne, Senior Executive Vice President and Chief Financial Officer of the company, Shalene Jacobson, Executive Vice President and Chief Financial Officer of the bank.

Speaker 6: And it sounds like you guys think that is a sustainable rate going forward. I just wanted to get confirmation of that. I mean, if you get 75 million of the originations, you got a certainly a lot of renewals and repricings going on in the quarter, such as a ton of churn. Do you think that that 20 plus basis point improvements kind of sustainable over the next couple of quarters?

And it sounds like you guys think that is a sustainable rate going forward I just wanted to get confirmation of that.

<unk> got 75 million of originations.

Certainly a lot of renewals in repricing going on in there.

The quarter. So just a ton of churn do you think about 20 plus basis point improvements kind of sustainable over the next.

Ty Aston: To begin our call, I will now turn it over to our CEO Ty Aston. Thank you, Nona. Good morning, everyone, and again, welcome to our third quarter, earnings call.

Couple of quarters.

Speaker 2: And if so, I mean, does that mean that, you know, the name is, like you said, pretty close to a bottom, I guess here. Oh, Grammistine. So yes, we think that is sustainable. I mean, reality is the first half of the year. We're raising rates weekly.

And if so I mean does that mean that now the bananas.

Like you said pretty close to a bottom I guess here.

Ty Aston: We did issue press release this morning that just kind of went over our quarter and in a lot of detail. We do have a presentation that Kathy and Shalene are going to go through to give a little more color on the quarter and kind of our operations, and then we'll open up to Q&A afterwards.

Graham is time, so yes, we think that is sustainable I mean, the reality is the first half of the year, we are raising rates weekly and so but we havent raise rates in the last few weeks and just the velocity of increase we've been playing catch up on repricing the balance sheet, but as rates.

Speaker 2: And so we haven't raised rates in the last few weeks and just the velocity of increase, we've been playing catch up on reprising the balance sheet. But as rates, we're anticipating rates to stay level and do stay level from here and we're not having to raise rates and we're reprising the assets side of the balance sheet pretty fast. And we continue to have a pretty short duration long portfolio. So...

Kathy Payne: Kathy? All right, thank you, Ty. We'll take a quick look at the balance sheet and the income statement here as I talk through the details. Looking at the balance sheet, total assets ended the quarter at $3.2 billion. That remained pretty consistent from the linked quarter. We did show a small increase or an increase for the quarter and total assets of $24 million. For the year 2023 assets are down about $120 million.

We anticipate rates to stay level, if rates stay do stay level from here and we're not having to raise rates then we're repricing on the asset side of the balance sheet.

Pretty pretty fast.

We continue to have a pretty short duration loan portfolio. So.

Speaker 2: That rate, which we think is pretty consistent and will be consistent going forward, we will catch up on our name pretty quickly. We're being conservative and not projecting that because who knows what lays in front of us, but we do think we do have less of headwinds related to our netage, smart, and brochure going forward. Okay, that's helpful. And then just to sit.

Right, which we think is pretty consistent and will be consistent going forward.

We will we will catch up on our NIM pretty quickly, we're being conservative and not projecting that because who knows what lays in front of us, but we do think we do have lots of headwinds related to our net interest margin for sure going forward.

Kathy Payne: That's 3.7%. That decrease mainly is reflected in our bond portfolio. It's down 110 million since beginning of the year. We had some short-term raise that we bought about $65 million that matured and about $25 million in called or matured munis during the year. So looking at loans, which obviously is a bigger bulk of our assets, they were $2.3 billion. At the end of Q3, they did decrease for the quarter of about $16 million and year-to-date, they're down about $60 million.

Okay. That's helpful. And then just specifically on the time deposit piece.

Can you talk about what your appetite is for that kind of funding going forward and also what the cost of those new time deposits were this quarter and maybe how you'd like to manage the loan to deposit ratio from here. Obviously, if loan growth is going to be muted, maybe you don't need a bunch of a bunch more time deposits I guess I'm just wondering how you guys are thinking.

Speaker 6: Can you talk about where your appetite is for that kind of funding going forward and also what the cost of those new time deposits were this quarter? And maybe how you'd like to manage the loan deposit ratio from here, obviously, if loan growth is gonna be muted, maybe you don't need a bunch of, a bunch more time deposits, I guess. I'm just wondering guys, how you guys are thinking about that and how it might plan to your funding strategy over the next several months.

About that and how it might play into your funding strategy over the next.

Several months.

Speaker 2: Yeah, we're in the middle of the road as far as our rates from time deposits and our marginal cost to time deposit right now is around 5% I believe.

Yeah. We're we're in the middle of the road as far as our rates on time deposits and of marginal our marginal cost of time deposit right now is around 5% I believe.

Kathy Payne: We address in the earnings release, I don't know what our thought is in that regard just in broad terms and that we've tightened our credit underwriting as most banks have. And of course, with higher rates, loan demand has softened some. The bulk of that $60 million year-to-date decrease I mentioned is in the construction and development bucket, just FYI. Deposit increased $55 million on a liability side. That's about 2% to $2.7 million.

Speaker 2: 510 maybe and that I mean that that mix is is capy sling talked about has a lot to do with the fact that you know our customers are moving money out of out of transaction accounts in two time deposits, which makes sense because you'll now so we're seeing some of that. And that that definitely has slowed but we're continue to see some of that migration of our deposit.

510, maybe and that I mean that that mix is as <unk> talked about has a lot to do with the fact that our customers are moving money out of out of transaction accounts into time deposits, which makes sense because Brazil now so we're seeing some of that.

And that.

That definitely has slowed but we're continuing to see some of that migration of our deposits as far as our our our goal of loan to deposit ratio has always been around 90% bogey as far as the Max and we're comfortable below that my guess is we will be in the mid eighties during the year we continue.

Speaker 2: As far as our goal of loan to deposit ratio has always been around 90% bogie as far as the max.

Kathy Payne: And there are $23 million decrease since beginning of year. As we've had for the last 12 months, actually, a continual shift in deposits into interest-bearing deposits was still our DDA deposits are certainly sitting at 34% total deposits.

Speaker 2: And we're comfortable below that. My guess is we will be in the mid 80s during the year. We continue as part of our model to focus on retail banking core deposits. That's what we did two years ago, three years ago, and what we're doing today. So as we continue to build core deposits and the loan side is more muted, then we're gonna probably lower in our loan deposit ratio throughout the year, which we're comfortable with because it gives us

As part of our model to focus on retail banking core deposits.

While we did two years ago, three years ago, and what we're doing today. So as we continue to build core deposits and the loan side is more muted than we're gonna probably lowered our loan deposit ratio throughout the year, which which we're comfortable with because it gives us plenty of something guys.

Kathy Payne: Shalene to give a little more detail on the deposits here in just a minute. Our equity capital remains strong. We ended the quarter at 296.8 million. That's 9.2% of average assets, and it's a TCE, a tangible common equity ratio of 8.21% down about 8 basis points. If you're looking at our change of our capital did decrease during the quarter. We had earnings of 6.3 million and as far as capital is concerned, that was all set by somewhat all set by an increase in our unrealized loss on our bonds, which is our AOCI of 3 million.

Speaker 2: plenty of funding as it turns to start lending more aggressively as things turn around. We are adding duration to the bond portfolio each month in small increments, but we think now is a good time to add some duration. So we're taking five to seven million or so of cash, low and add a little duration to the bond portfolio that have really all your loans.

It turns to start lending more aggressively as things turn around.

Our adding duration to the loan portfolio to the bond portfolio.

Each month in small increments, but we think now's a good time to add said some duration. So we're taking five to 7 million or so of cash flow and added a little duration to the bond portfolio that have really all year long.

Speaker 6: Okay, that's really helpful and I totally understand the pull forward of growth here for what could be a pretty strong common Texas over the next, the long term. And I guess the last leave on the name would be just

Okay, that's really helpful and I totally understand the pull forward a growth year for what could be a pretty strong economy in Texas over the next you know the long term.

And I guess lastly on the NIM would be.

Yes.

Kathy Payne: And then we did pay a 2.7 million dollar dividend during the quarter, and repurchase company stocked about 1.7 million. That's 61,688 shares during the quarter. That means here today we bought back a repurchase 410,000 shares, and that's 3.4% of shares outstanding.

Speaker 6: How you guys are thinking about, I guess, you're not referring to positive levels. I know Shaline said, mid to high 20s. How are you modeling that? What's the cadence of that drawdown from here? It's at 34%. Today, I mean, we're talking 30% by the beginning of 2024. What's it look like on your own?

How you guys are thinking about.

I guess your noninterest bearing deposit levels, initially and said mid to high <unk>.

How are you modeling out like what's the cadence of that drawdown from here.

34% today, I mean, when you're talking 30% by the beginning of 2020 for what's it look like on your own.

Speaker 3: I think 30% gram is really more modeling. I think it could go to high 20s probably possibly, but 30% lower modeling.

I think 30% Graham.

Kathy Payne: Again, looking at that dividend, again, we pay a pretty consistent dividend, and annualizes out to 92 cents a share for the year. That's up from 88 cents last year, which is a 5% increase, and the yield at today's prices over 3.25%.

Really what we're modeling.

I think it could go to high Twenty's, probably possibly but the 30% is what we're modeling.

Speaker 6: Okay, great, got it. Thank you guys, that's all. That's all for me today.

Okay.

Got it. Thank you guys. That's all that's all for me today.

Thanks Graham.

Speaker 1: Our next question will be from Brady Gayley with Kaby Debya.

Our next question will be from Brady Gailey with K B W.

Kathy Payne: So then turning to the income statement. Our Q3 net earnings were 6.3 million. That's 54 cents per share. There's really no extraordinary items in the quarter, so this would be our core earnings. So if you compare this quarter, Q3 to the core earnings of Q2, they're down about 1.2 million. That's going to be driven by mainly by lower net interest income of 1.4 million, and lower non-interesting income of about 250,000 when you compare it to the core non-interesting income of Q2.

Brian can you on mute.

Yes, good morning, guys morning Britney.

Speaker 7: But I know in the past we've talked about expenses for this year being around that $82 to $83 million mark, but it looks like we've already seen the first three quarters. So there's only one quarter left. It looks like you all could do a little better than that. Maybe just talk about expenses in 4Q and then longer term. I think you've talked about expenses being around 2.5%. Is that still the right way to think about it as we head into 2024?

But I know in the past we've talked about expenses for this year being around that $82 million to $83 million mark, but it looks like.

<unk> already seen the first three quarters. So there is only one quarter left it looks like you all could do a little better than that maybe just talk about expenses in <unk> and then longer term I think you've talked about expenses being around two 5% is that still the right way to think about it as we head into 2024.

Speaker 3: That's still our yield sign and something we pay attention to is that 2.5% of asset level. I still think we're going to be in that 82 billion range, 81 to 82 million dollar range, which that's right at the 2.5, maybe a little bit over. But we pay attention to that number. And that's our marker that we want to stay with the-

And that's still our.

Our yield sign and something we pay attention to is at two 5% of asset level I still think we're going to be in that.

Kathy Payne: So I thought it'd take a little bit of dive and look into the components of the margin, because that's obviously the major decrease from the prior quarter, and it is a variance from what consensus projections had out there. And looking at the averages table in the earnings release, Q3 compared to Q2 are interest varying deposit average balance increased 72 million. Almost all of that increase is due to an increase in time-money CDs, which obviously has a higher costing deposit cost.

Eight $2 billion range $81 million to $82 million range with that right at that 225, maybe a little bit over but.

We pay attention to that number and that's that's our that's our marker that we want to stay with him.

Speaker 7: And then another quarter of a zero provision, I know credit is still pretty clean here, but how do you think about that provision line as we had to next year, and credit? I know you had a couple of CRE loans go into sub-stainter, but that's still a relatively low level. So how do you think about credit in the provision into next year?

Okay, and then another quarter of a zero provision I know credit is still pretty clean here, but how do you think about that provision line as we head to next year I mean credit.

You had a couple of CRE loans go into substandard, but it's still a relatively low level. So how do you think about credit and the provision into next year.

Kathy Payne: On that same averages balance and yield stable are non-interest varying, or our DDA, second accounts, decrease 60 million, and then our money market accounts are our non-interest varying, our non-materian interest varying remain pretty steady. So both the DDA and the money market balance accounts were affected in part by decrease in our public fund money of $1 million for the quarter, which is typical for Q3 activity. Now, looking back at the cost of that interest-bearing deposit related to those that time-deposit activity, I mentioned the yield on interest-bearing accounts was 3.0% for the quarter, and that's compared to 2.41% for the linked quarter.

Yeah.

Speaker 2: Brady this time we we're starting to work on that for 24 I mean we're gonna we're gonna predict doubts and conservative uh didn't we don't see any concerns at this point but

Brady. This time, we were starting to work on that for 'twenty four I mean, we're going to we're going to protect apps and conservative.

Since for credit, we don't see any concerns at this point, but.

Speaker 2: The lack of clarity is going to have us project some moderate level of provision for 24, we will not we're not projecting a lot of net growth. So any kind of addition we make would be addition additional reserves just.

There's just a lack of clarity.

He's gonna have as projects some.

Moderate level of provision for 24, which we will not we were not projecting a lot of net grow so.

Any kind of addition, we make would be addition, additional reserves just.

Speaker 2: to shore up the portfolio. But at this point, we don't have an exact number, but it's gonna be, it's gonna be, we'll project enough that we're comfortable that we can more than cover and anticipate a downturn if we see one.

To show up the portfolio at this point, we don't have an exact number but it's going to be it's going to be where we'll project enough where we're comfortable that we can more than cover and anticipate a downturn if we say one.

Alright, and then finally for me if you look at the first half of the year deposits were down a little bit, but you grew deposits, 8% linked quarter Cana.

Speaker 7: All right, and then finally for me, if you look at the first half of the year, deposits were down a little bit, but you grew deposits 8% in link quarter can't annualize in 3Q, which was great to see. Looks like a lot of that growth came from, you know, core deposits. Maybe just talk about, you know, how you're thinking about deposit growth going forward.

Kathy Payne: A little more than what I increased in what we're projected, but that's obviously affected by that shift in deposits, and of course higher sea rates, but again, most of all of that increase came in that time-deposit category. If you look at our total cost of deposits, including the DDA bounces, for the quarter it was 1.98%, which is up 45 basis points from the linked quarter, when it was 1.53%. And on one note, you'll see on the earnings relapse, when you look at the detail, the increase in costing liabilities is being somewhat offset by rising rates in our loan book and other assets too, but looking at other earning assets, but looking at the loan yield, it increased 21 basis points from linked quarter and 85 basis points year over year.

<unk> six <unk>, which was great to see it looks like a lot of that growth came from.

Core deposits, maybe just talk about how.

How youre thinking about deposit growth going forward.

Speaker 2: Well, again, I mean, that's a big part of our model and core competency is retail banking and core deposits. And that's a, we are very likely going to name a cheap retail and deposit officer in the coming year to read, you know, read.

Well again, I mean, that's a big part of our model and core competency as retail banking and core deposits and that.

We are very likely going to name a cheap retail and deposit officer in the coming year to two rig rates.

Speaker 7: focus our efforts in that area corporately, because it's just a big part of our model. We're, I would say we're probably gonna project low single digit growth in deposits, just because of the pressure deposit pressures that are out there, but we plan to, I mean, that's a big part of how we look at franchise value in the bank and it'll continue to. Okay, great, thanks for the color guys. Thanks, Brad. Bye.

Focus our efforts in that area Corporately, because it's just a big part of our model, where I would say, we're probably going to project low single digit growth in deposits just because of the pressure deposit pressures that are out there but.

But we plan to I mean, that's that's a big part of how we look at franchise value in a bank and we continue to.

Kathy Payne: We have a relatively short average life in our loan portfolio, so we expect to see that quarterly increase in that category speed up in the coming quarters as interest rates continue to stay higher for longer, and we have the opportunity to reprise those loans in the coming quarters. So all that equates to our net interest margin being decreased about 17 basis points from the last quarter, it was 3.19%, and in Q3 this quarter, it is 3.02%.

Okay, great. Thanks for the color guys. Thanks.

Thanks, Brian .

Our next question is from Matt Olney with Stephens.

Hey, Thanks, good morning.

Ed.

Speaker 8: Going back to the, the, the martyr, I look, I think you sit around 3% in the near term. But I guess if we move forward a couple quarters and assuming there's a Fed pause from here, any color on how you see that margin performing into 2024, is that just going to flatten out or given those loan repricing dynamics on a shorter portfolio, you think you can recapture some of that pressure you experienced this year in the next year.

Going back to the margin outlook I think you said around 3% in the near term, but I guess, if we move forward a couple of quarters and assuming theres a fed pause from here.

Any color on how you see that margin performing into 2024 is that just kind of flatten out or given those loan repricing dynamics on my shoulder portfolio. Do you think you can recapture some of that pressure you experienced this year and into next year.

Kathy Payne: I mentioned briefly our non-interesting income, our core non-interesting income decreased about 250,000 from linked quarters, core non-interesting income, that's about 5%, that's almost all of that is due to lower volume related to the gain on sale of loans, both in the secondary market and SBA activity.

Speaker 2: Matt, let me speak to that. I mean, like I said, we're projecting, you know, conservative name going forward just because of the unknowns. But I would say that we have more of a tailwind than a headwind with vintage margin because of the reprising of our assets out of our bounce sheet.

Matt Let me speak to that I mean, like I said, where we're projecting.

Conservatives name going forward, just because of the unknowns, but but I would say that we have more of a tailwind and a headwind, but better margin because of the repricing of the asset side of our balance sheet. So.

Kathy Payne: Expenses are detailed on the earnings relief story, they're very flat for the quarter, and that made our efficiency ratio increase or all those components made our efficiency ratio increased to 72.5% for the quarter.

Speaker 2: So I would anticipate that we can't expand our margin very likely 24. We're just hesitant to come out and say that directly because, just everything we've seen the last year with the motion rates and the migration of deposits within all banks balance.

I would anticipate that we can expand our margins very likely in 'twenty. Four we're just has to come out and say that directly because.

Just everything at the same last year.

With that it moves in rates and the migration of deposits within all banks balance sheets. So.

Shalene Jacobson: So I'll turn it over to Shaleen, and she has a few comments about the loan portfolio and capital and liquidity. Yes, thank you, Kathy. As Kathy mentioned, loans are down about 15.7 million this quarter, primarily in our construction and development portfolio, this project that has been on our books for a while or moving to permanent financing where they're paying off. Overall, lending has slowed down as we've tightened underwriting standards, and borrowers demand is lower as a result of higher interest rates.

Speaker 2: So we certainly don't see it losing a lot of significant margin from here. We very likely can actually expand it, but we're just trying to be conserving how we're projecting it given unknowns at this point.

We certainly don't see it.

Losing a lot of significant margin from here, we are very likely can actually expand it but we're just trying to we're trying to be conservative in how we're projecting it.

Given the unknowns at this point.

Speaker 8: Okay, thanks for that, Ty. And then on the on the loan side, I think she'll ain't mentioned that the contraction of loan balances on it was on the construction side.

Okay. Thanks for that tie and then on the on the loan side.

I think <unk> mentioned that the contraction of loan balances on it was on the construction side.

Speaker 8: As those loans move at construction phase, any more color on are those being refinanced within the bank?

Those.

Those loans move out of the construction phase and any more color on are those being refinanced within the bank or into other banks or with other investors any kind of general commentary you have on those construction loans. When they reached the end of that construction phase it would be a mix of it would be a mix of both some of them some of them are going on.

Shalene Jacobson: However, we did originate about 76 million in new loans during the quarter with an average rate of 8.49%, so new loan yields are strong. Our non-performing assets continue to remain at historically low levels at 0.09% of total assets for the quarter compared to 0.11% in the prior quarter, and charge off sell to remain low at 619,000, and we had a net charge off to average loans ratio of 0.11%. Commercial Real Estate and Office Related Blends continued to be a hot topic, but we manage our consensus in those areas very well.

Speaker 8: or into other banks or with other investors, any kind of general commentary you have on those construction loans when they reach the end of that construction phase.

Speaker 2: It would be a mix of both. Some of them are going on many perm banks. Some of them are exiting bank, depending on the projects, the plans when we went into the construction piece of it. So I think it would be a mix of both.

Perm Bank some of them are.

Exiting bank, depending on the project plans when we went into the construction piece of it.

So I think it will be a mix of both.

Speaker 8: Okay, thanks for that. And I guess there were a few credits that were called out in the press release.

Okay. Thanks for that and then I guess there were a few credits that were called out in the in the press release.

Speaker 8: as far as the downgrades. I guess specifically the loan that's in Austin, appreciate all the color you guys gave us there. Well, any color on what type of sea reloan this is, and it sounds like you expect some resolution in the near term.

As far as the downgrades I guess, specifically the the loan that then that's in Austin.

Shalene Jacobson: We've got a diverse portfolio when we really don't have any significant concerns in those areas right now. CRE represents about 38.9% of our average loan balance on that office CRE is 523,000. So it's primarily mom and pop office type buildings instead of the larger commercial office development.

I appreciate all the color you guys gave us there.

Any color on what type of CRE loan this is and it sounds like you expect some.

Resolution in the near term just any color on the the appraisal process or kind of why you expect resolution there I think before the end of the year.

Speaker 8: any color on the appraisal process or kind of why you expect resolution there, I think before the end of the year.

Speaker 2: Yeah, it's part of a bigger group and they have multiple properties. This property self cash flows, so it actually cash flows itself. Well, the project cash flows with the debt we have, but we're just working through a bigger

Yeah, it's part of a bigger group.

And they have multiple properties as property self cash flow. So it actually cash flows itself.

The project cash flows.

Shalene Jacobson: We did have an increase in substandard loans during the quarter of 21.4 million. However, total substandard loans still represent only 1.3% of the total loan portfolio. The increased results primarily from two loans, one that had a balance of, or has a balance of 14.5 million in the other with a balance of 6.9 million. Both of those loans are currently performing. They both have low LTPs and at this time, we expect minimal to no losses as we work through two credits. Overall, the quality of the portfolio really does remain strong.

With that we have.

But we're just working through.

Speaker 2: a group of loans that this group has that are not in our bank. This is only credit week.

A group of loans that this group has that are not in our back. This is the only credit.

But ours is one we think will be resolved pretty quickly as part of overall resolution of this company and we're very comfortable with it where it's located the top property is cash flow. We just felt like given everything going on with the borrower it made sense to downgraded.

Speaker 2: But ours is one we think will be resolved pretty quickly as part of overall resolution of this company. And we're very comfortable with it. We're slowly getting the top property is cash flow. We just felt like giving everything going on with the borrower, it made sense to downgrade it.

Okay, and then I guess more broadly just the loan portfolio I think they finally, it wasn't the Austin market and any color on just how much exposure the bank hasn't that Austin market.

Speaker 8: Okay, and then I guess more broadly just the loan portfolio, I think this one was in the Austin market. Any color on just how much exposure the bank has in that Austin market just overall at this point?

Shalene Jacobson: We do expect some potential challenges in the coming months that we continue to believe that our borrowers and our overall credit metrics will continue to benefit from the good tailwinds that we have here in Texas compared to some other geographic areas. Our quarter end ACL coverage is 1.34% of total loans. We did not have a provision for credit losses during the third quarter. Our qualitative factor adjustments that we've made in previous quarters within our seasonal loan are still relevant today. And the decrease in our loan portfolio has allowed us to not need additional provisions with quarter.

Overall at this point.

I mean not at this point, we don't we don't see any real loss exposure I mean, I think like I've said before with rates moving up where they've moved youre going to say one off credits bubble up to the surface and have some weakness in all portfolios I think the key is to make sure that you have capacity to handle those which we keep our.

Speaker 2: I mean, not at this point, we don't see any real loss exposure. I mean, I think, like I said before, with rates moving up where they've moved, you're gonna see one-off credits, bubble up to the surface and have some weakness.

Speaker 2: and all portfolios, I think the key is to make sure that you have capacity to handle those, which we keep our decks pretty clear as far as problem assets, and to proactively work on those credits. We've been aggressive in moving credits out of the bank, if we felt like it was either weak or we felt like it would turn, it could become a weak credit in a different rate environment or economic environment. And our goal is to, as we identify credits to work those,

<unk> pretty clear as far as problem assets and tend to proactively work on those credits.

<unk> been aggressive in moving credits out of the bank. If we felt like it was either weak or we felt like it would turn it could become a weak credit at a different rate environment or economic environment and our goal is to us as we identified credits to work those.

Shalene Jacobson: On to deposits. As Kathy mentioned, deposits grew every month during the quarter and we ended the course and increased to 55.5 million. Respect to overall deposit risk, guarantee has a very granular and historically stable core deposit base. At quarter end, we had more than 87,000 deposit accounts with an average account balance of only $30,482. And our uninsured deposits are also relatively low, excluding public funds and guarantee owned accounts. Uninsured deposits were 25% of total deposits at quarter end.

Speaker 9: get them short up or get them moved out of the bank and kind of position ourselves where we could be able to handle others that if we do see other credits that surface in the environment we're going to see going forward with higher rates and potentially slower economic activity. Okay. Thanks for all the color guys.

Get them shored up or get them moved out of the bank and.

Kind of position ourselves, where we could.

We're able to handle others, if we do see other credits that are <unk>.

Surface.

In.

And the environment, we're going to say going forward with higher rates and potentially slower economic activity.

Okay.

Okay. Thanks for all the color guys. Thank.

Thank you Matt.

Thank you for your questions.

I would like to remind everyone. The recording of this call will be available by one P. M. Today on our Investor Relations page at G. M T Y dot com. Thank.

Speaker 10: I would like to remind everyone the recording of this call will be available by 1pm today on our investor relations page at gnty.com. Thank you for attending this.

Shalene Jacobson: Our loan to deposit ratio continues to improve as deposit balances increase and loan balance to decrease. Our ratio was 87.2% in the third quarter compared to 89.7% in the second quarter and 20, I'm sorry, 90.6% in the same quarter in 2022. Although down some prior quarter, Kathy mentioned non-interest bearing deposits still represent 34% of total deposits. We expect that ratio to continue to move down towards our historical pre-pandemic average, which was more in the mid to high 20, and as far as the deposit betas, they work high again in third quarter, but we don't anticipate any more large increases in deposit rates for the remader of this year.

Thank you for attending this concludes our call.

Goodbye.

Shalene Jacobson: Some deposits will continue to reprise a CD's mature and renew into higher yielding or higher rate CDs, and some of the customers will continue to move from non-interspiring to interesting account. However, we really do expect deposit betas to be much slower in the fourth quarter.

Shalene Jacobson: Liquidity is good. We ended the quarter with a liquidity ratio of 14% and we used our cash flows from matured securities and loans to pay down federal home loan banks advances, but about $20 million during the quarter and we also purchased some small amounts of mortgage-backed securities at higher yields during the quarter as well. We have contingent liquidity of about 1.5 billion available through either federal home loan bank advances, federal reserve bank programs, and other correspondents, fed funds lines and lines of credit. Our total net unrealized losses on investment securities remain reasonable at $65.3 million of which $24.7 million is related to our AFS securities and included within our AOCI on the balance sheet.

Shalene Jacobson: Capital is also strong. As Kathy mentioned, we use some of our excess capital in the third quarter to repurchase Sheriff's Guarantee Stock and add intrinsic value to our shareholders. We repurchased $61,288 shares and average price of $27.38 And then finally, with respect to the declines I just mentioned in the fair value of investment securities, even if we had to liquidate the entire portfolio, which we certainly don't expect to do or anticipate doing, our total equity to average assets ratio will remain pretty good at 8.2%. Right now it's 9.2%.

Shalene Jacobson: That concludes our prepared remarks, so I will turn it back over to Nona for Q&A. Thank you, Shilane.

Kim Mitchell: At the time of our Q&A session, our first question today will be from Kim Mitchell with Raymond Giants. Hey everyone, good morning. Thanks for taking my questions today. I want to appreciate the color there on the end of this quarter. Obviously it's getting pretty close to that 3% level. You've been talking about staying above through the cycle. So it's kind of getting to how things develop this quarter. Could you talk about if you think them good from here?

Tim Mitchell: I'll take that to Tim. Our modeling has projected out that we'll stay right at 3%, I think what will affect that more than anything is the mix of the deposits. As I said, basically all the increase came in the time deposits last quarter. We've got modeling that says that we can pretty well keep it near the 3%. We're confident that the pace of increase in rates is really going to slow down in Q4 from what we did in Q2 and Q3 for that matter.

Tim Mitchell: So we can control the deposit rates somewhat, what we don't control so much is the mix. So we'll see how that lays out. But our modeling has us right at near the 3%, whether we go below it just a little bit maybe, but certainly not much.

Tim Mitchell: and I guess next on the loan growth front, loan ver, down a little bit this course, which is kind of consistently you've been talking about previously, being comfortable with, you know, kind of letting the balance sheet shrink a little bit. I guess that remains true, moving forward for the rest of the year, and then how do you think about loan growth going into 2024 if they elevate it for longer.

Tim Mitchell: Hey Tim, this time I think loan growth in 24 is going to be muted, I would say would it be low single digit invest just with higher rates, economic activity is going to be slower as we would all expect. So that's kind of how we're starting to kind of put together our modeling for 24 budget for 24, but that's kind of how we're going to look next year. Awesome.

Tim Mitchell: Some of them are just lastly for me, buybacks took a step back this quarter from second quarter levels.

Tim Mitchell: I was curious to discuss the rationale behind the more muted activity, and then how you think about repurchase activity moving forward. I mean, like we said in the past, it's a, it's a capital out party for us when it hit for metrics on valuation, and we did not buy as much stock back this last quarter, just because the process, you know, stronger than and had been previous quarter during the year, but as we see opportunities to buy back stock at lower valuations we certainly will. Perfect. Awesome.

Tim Mitchell: Thank you guys for taking my questions. I'll hop out again. Thanks Tim.

Graham Dick: Our next question today is from Graham Dick with Piper Sandler.

Graham Dick: Hey everybody, good morning. Morning, Graham. So I just, I kind of wanted to circle back to the name just quickly and just get some more color on a couple of things. So the loan yields, I mean, they're out 25, 26, 24, over 20 basis points of the last three quarters. And it sounds like you guys think that is a sustainable rate going forward. I just wanted to get confirmation of that. I mean, if you get 75 million of the originations, you got a certainly a lot of renewals and reprications going on in the quarter, such as a ton of charm.

Graham Dick: Do you think that that 20 plus basis point improvements kind of sustainable over the next couple of quarters? And if so, I mean, does that mean that, you know, the name is like you said, pretty close to the bottom, I guess here. Oh, Graham is tired. So yes, we think that is sustainable. I mean, the reality is the first half of the year we're raising rates weekly. And so we haven't raised rates in the last few weeks and just a velocity of increase.

Graham Dick: We've been playing catch up on reprising the balance sheet, but as rates, you know, we're anticipating rates to stay level and do stay level from here. And we're not having to raise rates and we're reprising the assets side of the balance sheet pretty, pretty fast and that we haven't we continue to have a pretty short duration loan portfolio. So, and that rate, which we think is pretty consistent and will be consistent going forward, we will, we will catch up on our, our name pretty quickly. We're being conservative and not projecting that because who knows what lays in front of us, but we do think we do have less of headwinds related to our netage smart for sure going forward.

Graham Dick: Okay, that's helpful.

Graham Dick: And then just specifically on the time deposit piece, can you talk about where your appetite is for that kind of funding going forward and also with the cost of those new time deposits for this quarter, and maybe how you'd like to manage the loan deposit ratio from here, obviously, if loan growth is going to be muted, maybe you don't need a bunch of, you know, a bunch more time deposits, I guess. I'm just wondering guys, how you guys are thinking about that and how it might plan to your funding strategy over the next, you know, several months.

Graham Dick: Yeah, we're in the middle of the road as far as our rates on time deposits and the marginal, our marginal cost of time deposit right now is around 5% I believe, 5, 10 maybe. And that, I mean, that, that, that mix is, is, Kevin Schleen talked about has a lot to do with the fact that, you know, our customers are moving money out of, out of transaction accounts in two time deposits, which makes sense because we're yield now.

Graham Dick: So we're seeing some of that, and that, that definitely has slowed, but we're continuing to see some of that migration of our deposits. As far as our, our goal of loan deposit ratio has always been around 90% bogie as far as the max. And we're comfortable below that. My guess is we will be in the mid 80s during the year. We continue as part of our model to focus on retail banking core deposits.

Graham Dick: That's, you know, what we did two years ago, three years ago, and what we're doing today. So as we continue to build core deposits and the loan side is more muted, then we're going to probably lower in our loan deposit ratio throughout the year, which, which we're comfortable with because that gives us plenty of funding as it turns to start lending more aggressively as things turn around. We are adding duration to the loan port, I mean in small increments, but we think now is a good time to add some duration. So we're taking five to seven million or so cash flow and add a little duration to the bond portfolio and have really all your loan.

Graham Dick: Okay, that's that's really helpful. And I totally understand the pull forward of growth here for, you know, what could be a pretty strong economy in Texas over the next, you know, the long term.

Graham Dick: I guess the last week on the name would be just how you guys are thinking about, um, I guess you're not referring to positive levels.

Graham Dick: And as Shaline said, mid to high 20s, how are you modeling that like, what's the cadence of that drawdown from here? Uh, it's at 34% today. I mean, we're talking 30% by the beginning of 2024.

Graham Dick: What's it look like on your old end? I think 30% Graham is really more modeling. Uh, I think it could go to high 20s probably possibly, but 30% what we're modeling.

Graham Dick: Okay, great. Got it.

Graham Dick: Thank you guys. That's all I that's all for me today. Thank you Graham.

Brady Gailey: Our next question will be from Brady Gaili with Kaby Debja. Brady, can you unmute? Yeah, it's good morning guys. Morning. I know in the past we've talked about expenses for this year being around that 82 to 83 million dollar mark, but it looks like, you know, we've already seen the first three quarters. So there's only one quarter left. It looks like y'all could do a little better than that. Maybe just talk about expenses in 4Q and then longer term.

Brady Gailey: I think you've talked about expenses being around 2.5%. Is that still the right way to think about it as we head into 2024? Eddie, that's still our yield sign and something we pay attention to at that two and a half percent of asset level. I still think we're going to be in that 82 million range 81 to 82 million dollar range, which that's right at the 2.5 maybe a little bit over, but we pay attention to that number and that's our that's our marker that we want to stay within.

Brady Gailey: Okay, and then you know, another quarter of a zero provision on no credit is still pretty clean here, but how do you think about that, you know, provision line as we had to next year and credit. I know you had a couple of CRE loans go into substandard, but that, you know, it's still relatively low level. So how do you think about credit in the provision into next year. Brady this time we we're starting to work on that for 24 I mean we're going to we're going to predict doubts and conservative things for credit, we don't see any concerns at this point, but just lack of clarity is going to have us project some, you know, modern level of provision for 24, we will not.

Brady Gailey: We were not projecting a lot of net growth, so any kind of addition we make would be addition additional reserves just to short the portfolio, but at this point, we don't have an exact number, but it's going to be, it's going to be, we'll project enough that we're comfortable that we can more than cover and anticipate a downturn if we see one. All right, and then finally for me, if you look at the first half of the year deposits were down a little bit, but you grew deposits 8% link quarter can annualize in 3, which was great to see looks like a lot of that growth came from, you know, core deposits maybe just talk about, you know, how you're thinking about deposit growth going forward.

Brady Gailey: Well, again, I mean that's a big part of our model and core competency is retail banking and in quarter deposits and that's a, we are very likely going to name a cheap retail and deposit officer in the coming year to read, you know, read. Focus our efforts in that area of corporately because it's just a big part of our model, we're, I would say we're probably going to project low single digit growth and deposits just because of the pressure deposit pressures are out there, but we plan to, I mean, that's a, that's a big part of, you know, how we look at franchise buying a bank and we continue to.

Brady Gailey: Okay, great, thanks for the color guys, thanks, Brady.

Matt: Our next question is from that only the Stevens. Hey, thanks, good morning, going back to the, the monitor, I look, I think you sit around 3% in the near term, but I guess if we move forward a couple quarters and assuming there's a fed pause from here. Any color on how you see that margin performing into 2024 is that just going to flatten out or given those loan repricing dynamics on a shorter portfolio, you think you can recapture some of that pressure you experience this year in the next year.

Matt: Matt, let me speak to that. I mean, like I said, we're projecting, you know, conservatives now I'm going forward just because of the unknowns, but I would say that we have more of a tailwind than a headwind with vintage margin because of the reprising of our assets out of our bounce sheet. So I would anticipate that we can't expand our margin very likely in 24. We're just hesitant to come out and say that directly because, you know, just everything we've seen the last year with the moves and rates and the migration of deposits within all banks bounce sheets.

Matt: So we certainly don't see it losing a lot of significant margin from here. We very likely can't actually expand it, but we're just trying to be conservative and how we're projecting it, given the unknowns at this point. Okay.

Matt: Thanks for that, Ty.

Matt: And then on the on the loan side, I think Shalene mentioned that the contraction of loan balances on it was on the construction side.

Matt: As those loans move at construction phase, any more color on are those being refinanced within the bank or into other banks or with other investors, any kind of general commentary you have on those construction loans when they reach the end of that construction phase. It would be a mix of, it would be a mix of both. Some of some of them are going on mini-perm banks. Some of them are exiting bank, depending on, you know, the projects, the plans when we went into the construction piece of it. So I think it would be a mix of both.

Matt: Okay. Thanks for that.

Matt: And then I guess there were a few credits that were called out in the press release as far as the downgrades. And I guess specifically the loan that's in Austin, appreciate all the color you guys gave us there. Well, any color on what type of CRE loan this is? And it sounds like you expect some resolution in the near term. Any color on the appraisal process or kind of why you expect resolution there, I think before the end of the year.

Matt: Yeah, it's part of a bigger group. And they have multiple properties, this property, self cash flow, so it actually cash flows itself, the project cash flows with the debt we have. But we're just working through a group of loans that this group has that are not in our bank. This is only credit we have. But ours is one we think will be resolved pretty quickly as part of overall resolution of this company. And we're very comfortable with it. We're located at our property is cash flow. We just felt like giving everything going on with the borrower.

Matt: It made sense to downgrade it. Okay.

Matt: And then I guess more broadly just the loan portfolio. I think this one was in the Austin market.

Matt: Any color on just how much exposure the bank has in that Austin market just overall at this point. I mean, not at this point we don't we don't see any real loss exposure. I mean, I think, you know, like I said before with rates moving up where they've moved, you're going to see one off credits, you know, bubble up to the surface and have some weakness in all portfolios. I think the key is to make sure that you have capacity to handle those which we keep our decks pretty clear as far as problem assets and to proactively work on those credits.

Matt: We've been aggressive in moving credits out of the bank. If we felt like it was either weak or we felt like it would turn, you could become a weak credit in a different rate environment or economic environment.

Matt: And our goal is to as we identify credits to work those, get them short up or get them moved out of the bank and kind of position ourselves where we could are able to handle others that if we do see other credits that surface in the environment, we're going to see going forward higher rates and potentially slower economic activity.

Nona Branch: Thank you for your questions. I would like to remind everyone the recording of this call will be available by 1 p.m, today on our investor relations page at gntwa.com. Thank you for attending this call.

Nona Branch: Goodbye.