Q3 2024 Guaranty Bancshares Inc Earnings Call

Episode 2

Episode 2

Nona Branch: Good morning and welcome to the Guaranty Bancshares 3rd quarter 2024 earnings call.

Speaker Change: Good morning, and welcome to the Gary Banks Shares third quarter, 2020-24 earnings call. My name is Nona Branch, and I will be your operator for today's call. I would like to remind everyone that this call is being recorded. After our prepare remarks, there will be a Q&A session. Our host for today's call will be Ty Asson, Chairman and Chief Executive Officer, Shaling Jacobson, Executive Vice President and Chief Financial Officer. To begin our call, I will now turn it over to our CEO, Ty Asson.

Nona Branch: My name is Nona Branch, and I will be your operator for today's call. I would like to remind everyone that this call is being recorded. After our prepared remarks, there will be a Q&A session.

Nona Branch: Our host for today's call will be Ty Afton, Chairman and Chief Executive Officer; Shalene Jacobson, Executive Vice President and Chief Financial Officer.

Ty Afton: To begin our call, I will now turn it over to our CEO, Ty Afton.

Ty Afton: Thank you, Nona. Good morning, everyone, and again welcome to our 3rd quarter earnings call. Our company did have a good quarter.

Ty Asson: Good morning everyone and again, welcome to our third quarter earnings call. Our company did have a good quarter. We did have some extraordinary expenses related to a couple of properties we have in ORE that we were we capitalized expenses and most properties.

Ty Afton: We did have some extraordinary expenses related to a couple of properties we have in ORE that were we capitalized expenses and properties. We feel like those will be resolved next few weeks as we have both those properties under contract, so that will resolve itself and will recoup some of those expenses. Our growth is still muted. Our best customers are really being cautious right now with where things are with rates, and we do think as we get in 25, we see some rate reductions get past the election. Some of the geopolitical things kind of calm down.

Ty Asson: We feel like those will be resolved next few weeks as we have both as part of the contract so that will kind of resolve itself and will equip some of those expenses. Our growth is still muted. Our best customers are really being cautious right now with with four things, all this race.

Ty Asson: And we do think as we get in 25 we see some rape reductions get past the election, some of the geopolitical things kind of come down, we'll see additional growth in our state. Our state still has a very vibrant economy. But we are seeing muted growth, again, some of our best customers.

Ty Afton: We'll see additional growth in our state. Our state still has a very vibrant economy, but we are seeing muted growth again with some of our best customers.

Ty Afton: We do have a strong core deposit base, and that's something we've really been focused on the last two years, and we've certainly added to that this year. Our strategy, as I've mentioned before, we really grew this company significantly from 2012 to 2016, probably more than any time in our history at five-year period. We were able to do that because we came out of the financial crisis in a strong position, so our strategy the last couple of years has been to do the same thing: to position this company where we had strong liquidity, strong capital, strong asset quality, and the capacity to lend.

Ty Asson: We do have a strong core deposit base and that's something we've been really been focused on the last two years and we've certainly added that this year. Our strategy is I've mentioned before.

Ty Asson: You know, we really grew this company significantly from 2012 to 2016 probably more than any time in our history at five-year period. We were able to do that because we came out of the financial crisis in a strong position. So our strategy...

Ty Asson: But the last couple of years has been to do the same thing, is to position this company where we had strong liquidity strong capital.

Ty Asson: Strong acid quality and the capacity to land. In other words, our living buckets had room to grow the company and grow the portfolio.

Ty Afton: In other words, our lending buckets had room to grow the company and grow the portfolio, and that's kind of the strategy we've been operating last two years as we go into 25. We think we're well positioned to grow this company, another billion, two billion dollars over the next three to four years because of those conditions. The fact that we have all those strengths in place to grow when we see growth in our markets and we see it makes sense, and that's going to be organic growth. That's going to be both on acquisitions, and there's just a lot of opportunities when you're in that position where you have options to grow the company again, both organically and both on acquisitions as opportunities present themselves.

Ty Asson: And that's kind of the strategy we've been operating last two years as we go into 25. We think we're well positioned to grow this company another billion two billion dollars over the next three to four years because of those conditions. The fact that we have all those strengths in place to grow when we see growth.

Ty Asson: and in our markets and we see it makes sense.

Ty Asson: and that's going to be organic growth, that's going to be bolt on acquisitions and there's just a lot of opportunities when you're in that position where you have options to grow the company again, both organically and bolt on acquisitions as our as opportunities present themselves. So we're starting to plan 2025.

Ty Afton: We're starting to plan 2025. We've been really good about the year. The growth we're not sure of at this point. We do think we'll see positive growth, but again we're waiting on conditions with rates and political conditions and everything else to kind of help that. But the overall positive narrative around taxes is still very positive, and a lot of opportunities in front of us related that. And then we're also starting to our update strategic plan that we'll do in the first part of 25, which again, like I've kind of outlined, has some real growth opportunities for us because of the way we're positioned as a company in the coming few years to capitalize on opportunities.

Ty Asson: We've been really good about the year. The growth. We're not sure at this point. We do think we'll see positive growth. But again, we're waiting on conditions with rates and political conditions, everything else to help that.

Ty Asson: But the overall positive narrative around taxes is still very positive and a lot of opportunities in front of us related that and then we're still, and we're also starting the door.

Ty Asson: Obday's strategic plan that we'll do in the first part of 25, which again, like I've kind of outlined, has some real growth opportunities for us because of the way we're positioned as a company in the coming few years to capitalize on opportunity.

Shalene Jacobson: So, with those open remarks, I'll turn it over to Shilin, who has an investor presentation, and after she goes to that, then we'll open up to Q&A. Shilin.

Speaker Change: With those open remarks, I'll turn it over to Shalene who has a investor presentation. And after she goes through that, then we'll open up the Q&A Shalene.

Shalene Jacobson: Thanks, Ty. I'll kick it off, like usual, with the balance sheets. Total assets are down about 88 million year to date, but our total assets actually increased 15.5 million during the third quarter, while total liabilities increased by about 4.8 million. Our growth loans decreased by 78.5 million, but we replaced those dollars with available-for-sale securities and with cash. We purchased about 24.1 million of mortgage-back securities with a weighted average yield to maturity of about 4.9% during the quarter, and we also purchased 15 million in U.S. Treasuries that had a weighted average yield of 3.9%. And of course, on the cash side, we were yielding about 5.3%.

Shalene: I'll kick it off, like usual with the balance sheet, total assets are down about 88 million here to date, that our total assets actually increased 15.5 million during the third quarter, while total liabilities increased by about 4.8 million.

Shalene: Our gross loans decreased by $78.5 million that we replaced those dollars with available for sale securities and with cash.

Shalene: We purchased about 24.1 million of mortgage-backed securities with a weighted average yields maturity of about 4.9% during the quarter. And we also purchased 15 million in US treasuries that had a weighted average yield of 3.9%.

Shalene: and of course on the trash side we re-ealting about 5.3%.

Shalene Jacobson: On the liability side of the balance sheet, deposits and repurchase agreement balances increased 48.8 million, and as we're offset by the repayment of 45 million in Federal Home Loan Bank advances, which now have a zero balance on the balance sheet. Total equity increased 10.7 million during the quarter, primarily resulting from net income of 7.4 million, and an improvement in our accumulated other comprehensive income of 6.6 million. This was offset by dividends paid of 2.7 million or 24 cents per share, and we repurchased nearly 60,000 shares at guarantee stock during the third quarter. On the income statement, the company earned 7.4 million in net income, which equates to 65 cents per basic share, which is consistent with what we earned in Q2, and up from 54 cents per share in the third quarter of 2023.

Shalene: On the liability side of the balance sheet, deposits and repurchasing agreement balances increased 48.8 million and as we're upset by the repayment of 45 million in federal home bank advances, which now have a zero balance on balance sheet.

Shalene: So, equity increased $10.7 million during the quarter, primarily resulting from net income of $7.4 million, and an imprisonment in our accumulated other comprehensive income of $6.6 million.

Shalene: This was offset by a dividend paid of 2.7 million or 24 cents per share. And we repurchased nearly 60,000 shares of guarantee stock during the third quarter.

Shalene: On the Income Statement, the company earned 7.4 million in net income, which equates to 65 cents per basic share, which is consistent with what we earned in Q2 and up from 54 cents per share in the third quarter of 2023.

Shalene Jacobson: Earnings were fairly on target with where we expected them to be in the third quarter, but were boosted slightly by a $500,000 reverse provision for credit losses, as you all noted in your first look report this morning, and we'll talk about that here in a minute. Our return on average assets was 0.96% for the quarter compared to 0.95% in Q2, and our return on average equity was 9.58% for the quarter compared to 9.91% in Q2. Our net interest margin was 3.33% this quarter, which is an increase from 3.26% in the second quarter and 3.02% during this quarter last year.

Shalene: Our name is Farley on Target, with where we expected them to be in the third quarter, but we're boosted slightly by a 500,000 dollar reverse provision for credit losses. As you all noted in your first look reports this morning and we'll talk about that here in a minute.

Shalene: Our return on average assets was 0.96% for the quarter compared to 0.95% in Q2. And our return on average equity was 9.58% for the quarter compared to 9.91% in Q2.

Shalene: Our net interest margin was 3.33% this quarter, which is an increase from 3.26%.

Shalene: In the second quarter, in 3.02% during this quarter last year, those increases from the prior quarter and prior, your quarter results from improvements and inter-stirting assets that were better than our great-son-our-costing-line abilities.

Shalene Jacobson: Those increases from the prior quarter and prior year quarter results from improvements in interest earning assets that were better than our rates on our costing liabilities. The average yield on interest earning assets during the third quarter increased one basis point from 5.61% to 5.62%, while the average rate of our costing liabilities decreased 7 basis points from 3.43% in the second quarter to 3.36% in the current quarter. We expect to see continued overall improvements in the NIM as many of our loan assets continue to reprise from 3 and 4 and 5 years ago at the higher rates that they are now, but also we'll be able to see some improvements on the deposit side.

Shalene: The average yield on intersturning assets during the third quarter increased one basis point from 5.61% to 5.62%.

Shalene: While the average rate of our costing liabilities decreased 7 basis points from 3.4% in the second quarter to 3.36% in the current quarter.

Shalene: We expect to see it continued overall improvement in the NAM as

Shalene: Many of our loan assets continue to reprise.

Shalene: from three and four and five years ago at the higher rates they are now, but also we'll be able to see some improvements on the deposits side. The significant amount of our interspereying deposits now about 740 million are certificates with deposits.

Shalene Jacobson: The significant amount of our interest bearing deposits now about 740 million are certificates of deposit. Those are primarily made up of nine months and 13-month CD specials that we've had running for the past couple of years. In the fourth quarter, we anticipate that $253 million in CDs will reprise, and those CDs currently have a weighted average rate of 4.77%. The nine-month and 13-month specials that we have now, depending on whether it's a jumbo CD or non-jumbo, range from 3.55% to 4.2%, if it's a jumbo nine-month CD. So we'll be able to see quite an improvement on the deposit cost side over the next quarter, and then about 90% of our total CD portfolio will reprise over the next nine months.

Shalene: Those are primarily made up of nine-month and 13-month CD specials that we've had running for the past couple of years.

Shalene: In the fourth quarter, we anticipate that $253 million in CDs will reprise and this CDs currently have a weighted average rate of 4.77%.

Shalene: The Nine Month and...

Shalene: 13 month specials that we have now, depending on whether it's a jumbo CD or non-jumpo, range from 3.55% to 4.2% if it's a jumbo 9 month CD. So we'll be able to see quite an improvement on the deposit cost side over the next quarter.

Shalene: and then about 90% of our total CD portfolio will reprise over the next nine months.

Shalene Jacobson: The average rate on the CDs that are maturing over the next nine months is 4.73%. Non-interest income decreased by 555,000 during the quarter, resulting primarily from a $900,000 ORE valuation allowance that we had in the prior quarter that was not present in this quarter. However, non-interest expense increased by about 76,000, which was primarily due to holding costs related to the ORE, which I'll talk about a bit more shortly. Our efficiency ratio was 70.47% for the quarter. On to credit and allowance for credit losses, our gross loans, as I mentioned, decreased 78.5 million in the second quarter and have decreased about 186 million year to date, primarily in our CNI construction and development and CRE loan segments.

Shalene: The average rate on the cities that are maturing over the next nine months is 4.73%.

Shalene: Non-interesting comb decreased by 555,000 during the quarter, resulting primarily from a $900,000 ORE valuation allowance that we had in the prior quarter, that was not present in this quarter.

Shalene: However, Nona Interest extends increased by about 76,000, which was primarily due to holding costs related to the ORE, which I'll talk about a bit more shortly.

Shalene: Our efficiency ratio was 70.47% for the border.

Shalene: On to credit, Nona Roberts for credit losses, our gross loans have been mentioned decreased 78.5 million in the second quarter and have decreased about 186 million year to date, primarily in our CNI construction and development in CR-E, one segment.

Shalene Jacobson: During the third quarter, we did, however, originate 63.8 million in new loans that had an average rate of 8.07%. So new loan yields remain at good levels. Non-performing assets continue to remain at historically low levels at 0.66% of total assets for the quarter compared to 0.71% in the prior quarter. Those percentages include the ORE and non-accrual loans, but you exclude the ORE, which I tried to mention we expect to resolve in the fourth quarter. Non-performing loans as a percentage of total loans is 0.25%, and as a percentage of total assets is only 0.17%. So really, really low levels there.

Shalene: During the third quarter, we did, however, originate 63.8 million in new loans that had an average rate of 8.07 percent, so new loan yields remain at good levels.

Shalene: Episode 2

Shalene: Non-beforming assets continue to remain at historically low levels at

Shalene: 0.66% of total assets for the quarter compared to 0.71% in the prior quarter.

Shalene: Those percentages include those ORE and Nona Coral Lens, but if you exclude the ORE, which type mentioned we expect to resolve in the fourth quarter, non-performing Lens as a percentage of total loans is 0.25%. And as a percentage of total assets is only 0.17%. So, really, really low-level there.

Shalene Jacobson: Net charge us also remain low. We had a $239,000 net charge after in the quarter, and our net charge up to average loans ratio was 0.04%. For the ORE, we currently have the same two properties that we mentioned last quarter in the earnings call, and in the queue that we now have sales contracts on both of them as time mentioned. We have incurred some holding expenses to repair those properties for sale during the quarter, as well as some legal and maintenance expenses that we hope to recoup some or all of those expenses on the sale of the properties.

Shalene: Net Charge Office, also remain low, we had a $239,000 net charge off during the quarter, and our net charge up to average loans ratio was 0, we 0,4%.

Shalene: For the LRE, we currently have the same two properties that we mentioned last quarter in the earnings call and in the queue that we now have sales contracts on both of them as time mentioned. We haven't heard some holding expenses to repair those properties for sale during the quarter as well as some legal and maintenance expenses that we hope to recruit.

Shalene: Some, or all of those expenses on the sale of the properties, we expect both of them to close in the fourth quarter likely in November and we do not anticipate any losses from the current but values that we have about to do.

Shalene Jacobson: We expect both of them to close in the fourth quarter, likely in November, and we do not anticipate any losses from the current but values that we have for both of them. As I've mentioned for several quarters now, we manage C&D and CRE concentrations, including office-related loans, very closely. We have a diverse portfolio, and we really don't have any significant concerns in those areas. CRE represents about 40.5% of our total loan portfolio. Of that 40.5, only 5.8% is office-related, and those loans have an average loan balance of only $544,000. Finally, our non-accrual loans were 5.1 million as of September 30th, which were down from 6.2 million in the prior quarter.

Shalene: As I've mentioned for several quarters now, we manage C&D and CRE concentrations including office-related bones very closely. We have a diverse portfolio and we really don't have any significant concerns in those areas.

Shalene: CRE represents about 40.5% of our total loan portfolio. It doesn't have 40.5, only 5.8% is often simulated, and those loans have an average loan balance of only 544,000 dollars.

Shalene: Finally, Arnona Corollones were a 5.1 million as of September 30 at which were down from 6.2 million in the prior quarter. And our substandard loans were 12.3 million at quarter end, which is down from 18.7 million at the end of Q2.

Shalene Jacobson: And our substandard loans were 12.3 million at quarter end, which was down from 18.7 million at the end of Q2. The decrease in substandard loans is a result of payoffs and upgrades for a couple of loans that have been current and compliant with loan terms for a number of months now.

Shalene: The decrease in substandard loans is a result of payoffs and upgrades for a couple of loans that has been current and compliant with loan terms for a number of months now.

Shalene Jacobson: As I mentioned previously, we did have a reverse provision for credit losses of $500,000 during the quarter, which resulted almost entirely from lower loan balances, the lower substandard loan balances, and really just stable overall credit trends. Our quarter-end ACL coverage is 1.34% of our total loans, which is similar to the 1.33% that we had at your end. All right, on to deposits liquidity in capital. Our total deposits grew during the quarter by 42.8 million in our customer repo balances; we're at about 6 million. We're combined increase of 48.8 million. DDA balances increased 19.2 million during the quarter, while CD's increased 24.5 million, and money market and savings accounts decreased about a million.

Shalene: As I mentioned previously, we did have a reverse provision for credit losses of 500,000 during the quarter, which resulted almost entirely from lower loan balances, the lower substandard loan balances and really disabled overall credit trends.

Shalene: Our quarter-end ACL coverage is 1.34% of our total length, which is similar to the 1.33% that we had at your end.

Shalene: i

Shalene: All right, onto deposits, liquidity and capital.

Shalene: Our total deposits grew during the quarter by 42.8 million in our customer retail balances were up about 6 million, reconvined and increased 48.8 million. DIA balances increased 19.2 million during the quarter, while CDs increased 24.5 million, and many market and savings accounts decreased about a million.

Shalene Jacobson: Non-interesting deposits continue to represent a good percentage of our total deposits at 31.5 percent at quarter end. With respect to overall deposit risk, Guarantee has a very granular and historically stable deposit base. At quarter end, we had nearly 90,000 deposit accounts with an average account balance of just $30,000. Our uninsured deposits also remain relatively low, excluding public funds in guarantee owned accounts, and insured deposits were 26.3% of total deposits at quarter end. Liquidity is also good. We ended the quarter with a liquidity ratio of 17.1 percent, and as I mentioned previously, we used some cash loads from matured securities and loan repayments to invest in new, available for sale mortgage fat and treasury securities, and also to pay down federal loan bank advances by 45 million during the quarter.

Shalene: Nona Branch, varying deposits continue to represent a good percentage of our total deposits at 31.5% at quarter end.

Shalene: With respect to overall deposit risk, guarantee has a very granular and historically stable deposit base. At quarter end, we had nearly 90,000 deposit accounts with an average account balance of just under $30,000.

Shalene: R&H and ensure deposits also remain relatively low, excluding public funds inherent to you under counts and ensure deposits for 26.3% total deposits at quarter end.

Shalene: The liquidity is also good. We end of the quarter with a liquidity ratio of 17.1% and as I mentioned previously, we use some cash flows from insurance curators and loan repayments to invest in new available for sale mortgage fat and treasury securities and also to pay down federal loan bank advances by 45 million during the quarter.

Shalene Jacobson: That balance is now zero. We also have total contingent liquidity of about 1.4 billion that's available to us through the Federal Home Loan Bank advances, the Federal Reserve Bank, and correspondent bank funds lines. Our total net unrealized losses on investment security continues to improve and remains reasonable at about 33.2 million. That's for million of that. It's attributable to our available-for-sale securities and included within the ASCI. Capital is also strong. We use the portion of our excess capital in the second quarter to pay a 24 cent per share dividend and to repurchase nearly 60,000 shares of GNTY stock at an average price of 30.65 cents per share.

Shalene: and that balance is now zero. We also have total contingent liquidity of about 1.4 billion that's available to us through several home-owned bank advances, federal reserve bank, and corresponding bank fund funds.

Shalene: Our total net unrealized losses on investment security continues to improve and remains reasonable at about 33.2 million, that's for those ASS and HTN. About 10.6 million of that is attributable to our available for sale securities and included within the ASCI.

Shalene: Capital is also strong. We is the portion of our excess capital in the second quarter to pay a 24-cent per share dividend in to reproduce nearly 60,000 shares. TNT Y stock at an average price of 30.

Shalene Jacobson: This, of course, continues to add in terms of value for our shareholders, which we like to see. Our total equity to average assets as of June 30 is just 10.4%.

Shalene: Six-five cents per share. This of course continues to add and turn the value for our shareholders.

Shalene: which we like to see. Our total equity to average assets, FFG and 30 is with 10.4%.

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

Speaker Change: I'm Matt Conclays, our prepared remarks, so I will turn it back over to Nona for Q&A.

Nona Branch: Thank you, Shalene.

Nona: Thank you Shalene.

Nona Branch: It is now time for the Q&A session.

Michael Rose: Our first question is going to be from Michael Rose with Raymond James.

Michael Rose: Hi, everyone. Can you hear me? Yes, Michael. Good morning. Thanks for taking my questions. Really appreciate the color that you gave on the deposit, repricing your schedule. Can you just kind of, and I know you mentioned loans repricing from three, four, or five years ago. Can you just maybe put a finer point on that, and I understand you guys bought some securities this quarter. Just trying to kind of understand the interplay between what that would mean for the margin both on the repricing schedule and securities purchases. And then you obviously had some deposit growth, DBA growth, this quarter, which was nice to see.

Speaker Change: Hey everyone, can you hear me?

Speaker Change: Good morning, thanks for taking my questions. I really appreciate the color that you gave on the deposit for pricing. You have a schedule. Can you just kind of, and I know you mentioned Lones of pricing from three, four or five years ago, can you just...

Speaker Change: and maybe put a finer point on that and I understand you guys bought some security this quarter. Just trying to kind of...

Speaker Change: Understand the interplay between, you know what that would mean for the margin both on the repricing schedule.

Speaker Change: Security's purchases, and then, you know, you obviously had some deposit growth, DDA growth, this quarter, which was nice to see. So I think you have previously talked about, you know, two to three basis points a month, just wanted to see if that was...

Michael Rose: So I think you previously talked about two to three basis points a month. Just wanted to see if that was kind of still a range. And, you know, I believe previously you talked about exiting 2025, you know, somewhere in the 350 or higher range, so just any updates there would be great. Thanks.

Speaker Change: have still arranged and I believe previously talked about.

Speaker Change: Exiting 2025, you know, somewhere in the 350 year higher range, so just any update there would be great. Thanks.

Shalene Jacobson: Shalene, you got that.

Speaker Change: Shalene, you wait, you got them.

Shalene Jacobson: Sure. Yeah. Yeah, Michael, we still do anticipate that nimble increase by about two basis points per month. And we're hoping that, you know, we'll be probably a little under 350 but definitely getting closer to it for our deposit repricing. I mean, we didn't do; we did small decreases in early September, but we really didn't do our big decreases until late September. As I mentioned, a lot of those CDs that are repricing are currently at 4.73 ish on a weighted average rate. 95% of those are in one of those two, either nine-month or 13-month CD specials that I mentioned.

Speaker Change: Sure, yeah.

Speaker Change: Yeah, Michael, we still do anticipate that Nimble increased by about two basic points per month. And we're hoping that we'll be probably a little under 350, but definitely getting closer to it.

Speaker Change: For our deposit repricing, we didn't do. We did small decreases in early September, but we really didn't do our big decreases until late September. As I mentioned, a lot of the CDs that are repricing are currently at 4.7-3ish on a weighted average rate.

Speaker Change: 95% of those are in one of those two either nine months or 13 month CD specials that I mentioned. And again, those will replace anywhere from 3.85% to 4.2%.

Ty Afton: And again, those will reprise anywhere from 3.8%, 3.55% to 4.2% at the highest. So we really expect that to help within kill wins and Q4 in terms of our loan side that you mentioned. Our overall portfolio turns pretty quickly, Michael. The total portfolio turns over about every 3 years. And a lot of our commercial loans have already reprised, but a lot of our non-commercial, wonderful family and consumer loans are fixed for a period of years and will continue to reprice at these higher rates. So we're expecting to see some continued improvement in those couple of portfolios on the loan side.

Speaker Change: at the highest.

Speaker Change: So we really expect that to help with until when's and thank you for.

Speaker Change: In terms of our loan side that you mentioned, our overall portfolio turns pretty quickly, Michael, the total portfolio turns over about every three years.

Speaker Change: and a lot of our...

Speaker Change: Our commercial loans have already reprised, but a lot of our non-commercial, wonderful family and consumer loans are fixed for a period of years and will continue to reprise at these higher rates. So we're expecting to see some continued improvement in those couple of portfolios on the

Ty Afton: Yeah, Michael, I'll just add, a lot of the loans that we've had roll out of the balance sheet the last two years are becoming out of, you know, low fours and rates. So, we've been able; we wanted to add some duration to the bond portfolio with these higher rates. We've been systematically doing that the last few quarters; you're really not losing a lot of yield when you're, you know, because we're actually picking up yield in a lot of ways, different bonds we're buying versus loans that are coming out of the portfolio. So that's been the strategy.

Speaker Change: Yeah, Michael, I'll just add, a lot of the loans that we've had roll out of the balance sheet the last two years are coming out of, you know, low floors and rates.

Speaker Change: We've been able, we wanted to add some duration to the bond portfolio with these higher rates.

Speaker Change: We've been systematically doing that for the last few quarters. You're really not losing a lot of yield when you're, you know, because they're actually picking up yields in a lot of ways. Different bonds were buying versus loans that are coming out of the portfolio. So that's been the strategy.

Ty Afton: The kind of add some duration and we're not adding, I mean, we're buying basically 15 year playing the deal of MBS, but it's still adding some duration while these rates are high.

Speaker Change: kind of adds some duration, and we're not adding, I mean, we're buying basically 15-year plane vanilla of MBS, but it's still adding some duration while these rates are high, and so we're, that's kind of been what we've been focused on the last few quarters to position that portfolio to really benefit not just from the legacy bonds that are in the portfolio, but also add some as these rates are up there to really benefit when rates come down a little bit.

Ty Afton: And so we're, that's kind of been what we've been focused on the last few quarters to position that portfolio to really benefit not just from the legacy bonds that are in the portfolio, but also add some as these rates are up there to really benefit the rates come down a little bit.

Michael Rose: Shilane and Ty, it's very helpful.

Speaker Change: Shalene Jacobson is very helpful. Maybe tie just as a follow-up. One thing you said at the outset of the call that kind of struck me is, if I position to grow the company, another billion or two billion over the next three to four years. Then I heard I think a little bit of cautiousness around maybe growth. Next year I know there's a lot of headwinds out there. The economy will see what happens.

Michael Rose: Maybe Ty, just as a follow-up, you know, one thing you said at the outset of the call that kind of struck me is, you have a position to grow the company another billion or two billion, you know, over the next three to four years. And then I heard I think a little bit of cautiousness around, you know, maybe growth, you know, next year. I know there's a lot of, you know, headwinds out there; the economy will see what happens. But that would, you know, that's, that's pretty meaningful growth. I know some of that's going to be acquisition.

Speaker Change: but that's pretty meaningful growth and I know some of that's going to be acquisition. So can you kind of break down both the organic opportunities you see at particular, as we get closer to 2026?

Ty Afton: So can you kind of break down, you know, both the organic opportunities you see it, particularly as we get closer to 2026. And then what you see from an M&A standpoint, because I don't think you've talked about M&A for, you know, for a while now. Thanks.

Speaker Change: and then what you see from an M&A standpoint, because I don't think you've talked about M&A for a while now. Thanks.

Ty Afton: Yeah, so like I was saying in the open remarks, I mean, you know, the strategy today, as it was coming out of the financial crisis, was to be positioned where we weren't playing, having to play defense when it was a good time to be playing an offense. And so, as rates come down, as we get more clarity, you know, with politics and everything else around the world, you know, the Texas story is still very strong. There's a lot of opportunity or state; we still have a very wealthy young management team. And we have all these factors in place in the capital, to asset quality, liquidity, and the capacity to grow the company.

Speaker Change: Yeah, so like I was saying an open remarks, I mean, you know, this strategy is...

Speaker Change: Today, as it was, it came out of the financial crisis, was to be positioned.

Speaker Change: where we weren't having to play defense when it was a good time to be playing an offense and so as rates come down as we get more clarity you know with with politics and everything else around the world you know the the Texas story is still very strong there's a lot of opportunity or state we still have a very wealthy young management team and we have all these factors in place in the capital to the asset quality liquidity and the capacity to grow the company and so it's no different than we're you know the same play we ran in five year periods in 12 to 16 where we you know double the size of the bank

Ty Afton: And so it's no different than we're, you know, the same play we ran in five-year periods and 12 to 16 where we, you know, double the size of the bank. And I just see that as an opportunity for us, is because we have the capacity to do that. As we come out of that, we're going to continue looking; organic growth is kind of our primary driver. But you know, there's a there's 300 banks in Texas under 800 million dollars in assets. So a very granular, you know, group of banks in the state. And we're still going to acquire a choice when our opportunities make sense for us.

Speaker Change: and I just see that as an opportunity for us as because we have the capacity to do that as we come out of that. We're going to continue looking organic growth is kind of our primary driver, but there's 300 banks in Texas under $800 million in assets.

Speaker Change: So, I'm very grindler, you know, I have a group of banks in the state.

Speaker Change: and we're still going to acquire a choice when their opportunities make sense for us. We would do both on acquisitions. I don't have a good, I mean, like I said, we're starting to work on our five-year strategic plan, as we go into the Q1 with our board. We will be modeling some of that out. So I don't have any specifics that I want to give.

Ty Afton: We would do both on acquisitions.

Ty Afton: I don't have a good. I mean, like I said, we're starting to work on our five-year strategic plan as we go into the Q1 with our board. We will, we will be modeling some of that out. So I don't have any specifics that I want to give it because we really haven't thought it through as far as how much that's going to be required, how much organic. I can just tell you that both opportunities are available to us because of our options that we have. And, you know, we can, we can certainly roll this company in other big and two billion dollars over the next three to four years.

Speaker Change: Because we really haven't thought it through as far as how much that's going to be acquired, how much organic. I can just say that both opportunities are available to us because of our options that we have.

Speaker Change: We can certainly roll this company in other big and $2 billion.

Ty Afton: And not really stretching thing and not right to really have to stretch as a company or and do it kind of as, you know, base hits, and that's kind of been our MO for the last 25 years. And I see that kind of coming coming back around again as an opportunity for us as we come out of and get into a more favorable economic environment in 25 and beyond.

Speaker Change: over the next three to four years, and not really stretching, you think. And I really have to stretch as a company and do it as base hits. And that's kind of been our MO for the last 25 years. And I see that kind of kind of coming back around again as an opportunity for us as we come out and get into a more favorable economic environment in 25 and beyond. I'm like everyone else, I don't know best starts January 1, 25, or we're mid-year 25. But I do know as rates come down, as we get more clarity on things. [inaudible]

Ty Afton: I like everyone else. I don't know that starts January one, 25 or we're mid-year 25, but I do know it's rates come down as we get more clarity on things. You know, the overall strength of the economy is there. And again, our strongest borrowers are being cautious, which we certainly encourage. But, but they also have a lot of capacity to continue to get out there and grow, and we want to grow with them, and, you know, we're going to be positioned to do that.

Speaker Change: you know the overall strength of the economy is there and again our strongest borrowers are being cautious which we certainly encourage but but they also have a lot of capacity to continue to get out there and grow and we want to grow with them and you know we're going to be positioned to do that.

Michael Rose: But, but, but, but, but, but very helpful.

Shalene Jacobson: And then maybe just one last final one for Shalene, just on the buyback. You know, I know you just previously talked about, you know, finishing out the program. I think it expires in the first or second quarter of 2026, but I just wanted to get any updated thoughts there. You know, now the sector has moved a little bit higher. I think the earn back on the buyback is about four years. Just wanted to see, you know, if you will continue to be up, you know, opportunistic and potentially finish out the program the a lot of time.

Speaker Change: and then maybe just one last final one for Shalene just on the

Speaker Change: on the buyback. I know you guys previously talked about finishing out the program. I think it expires in the first or second quarter of 2026. But...

Speaker Change: I just wanted to get any updates off there, you know, now the sector has moved a little bit higher. I think the earnback on the buyback is about four years, just wanted to see, you know, if you will continue to be up, you know, opportunistic, and potentially finish out the program the a lot of time. Thanks.

Shalene Jacobson: Thanks. Michael, that's a good question, but I mean, the price where it's at right now was a little bit higher, given the earn back potential and other opportunities for us to use our capital. So it just depends on where the stock price goes from here. You know, if it goes down a dollar or two, then we may be back buying up again. We'll just have to see where it goes there. We'll certainly use it up if we can.

Speaker Change: Michael, that's a good question, but I mean it's the...

Speaker Change: Price, where it's at right now, with a little bit higher, given the earned back potential and other opportunities for us to use our capital. So it just depends on where the stock price goes from here. You know, if it goes down a dollar or two, then we may be back buying up again. We'll just have to see where it goes there. We'll certainly use it up if we can, but we want to be careful of that earned back period.

Shalene Jacobson: But I think we're going to have a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit of a little bit.

Speaker Change: Okay, great. Thanks for taking my questions. Thanks, Michael.

Woody Lay: Our next call will be from Woody Lay with Kaby Deppia.

Speaker Change: Our next call will be from Woody Lay with KVDF yet.

Woody Lay: Hey, good morning, guys. Good morning.

Speaker Change: Episode 2

Woody Lay: Good morning, guys. Morning. I wanted to follow up on sort of the one shrinkage in the third quarter. I think in the release, you call out some non-relationship runoff driving part of that shrinkage. Just any way to quantify how much was related to the non-relationship and how much more there might be to go.

Woody Lay: Wanted to follow up on sort of the one shrinkage in the third quarter. I think in the release you call out some non-relationship runoff driving part of that shrinkage. Just any way to quantify how much was related to the non-relationship. And how much more there might be to go.

Ty Afton: Well, Woody, I mean, I would say the majority of what we've allowed to run off either we didn't consider core relationships or the deposit side of the equation wasn't what we wanted it to be, or there it was a project that was looking to go vertical and we weren't comfortable with the vertical piece of it at this point. Additional runoff, I don't have a good sense of that. We could see additional runoff in Q4. We could see additional runoff in Q1 and 2 and 25. But again, we're just, we're positioned to grow the portfolio as we see the opportunities that make sense to us, and we see the strong borrowers out there kind of getting more engaged.

Woody Lay: Well, what are you?

Speaker Change: I mean, I would say the majority of what we've allowed to run all Peter.

Woody Lay: We didn't consider correlation shifts or the deposit side of the equation wasn't what we wanted it to be or there was a project that was looking to go vertical and we weren't comfortable with the vertical.

Woody Lay: P7 at this point.

Woody Lay: Dishon, you know, run off. I don't have a good sense of that. We could see a digital runoff in Q4. We could say this or runoff in Q1 and 2 and 25.

Woody Lay: But again, we're just positioned to grow the portfolio as we see the opportunities that make sense to us and we see the strong borrowers out there kind of getting more engaged. So we're not losing any core relationships, certainly overpricing or anything else. But if we have a relationship with the last couple of years that wasn't as core to our what we consider a core.

Ty Afton: So we're not losing any core relationships, certainly overpricing or anything else. But if we have a relationship over the last couple of years that wasn't as core to our what we consider a core relationship with the bank and/or didn't have deposits with us that we felt like we. You know, we wanted with the relationship or, or they were taking it to a, you know, doing another tranche of the project we weren't comfortable in funding, then we would let those opportunities leave the bank.

Woody Lay: Relationship of the bank and or didn't have deposits with us that we felt like we wanted with the relationship or they were taken to doing another trunch of the project we weren't comfortable and funding, then we would let those opportunities leave the bank. So I hope I get you some basic color on that.

Woody Lay: So hope that hope I gave you some basic color on that.

Woody Lay: That's really helpful.

Speaker Change: That's really helpful. You know, if we do see one group continue to lag over, you know, you said, maybe through the first half of 25, do you think we see more bond portfolio purchases, just to help all set some of the rising cash level?

Ty Afton: You know, if we do see one growth continue to lag over, you know, you said maybe maybe through the first half of 2025, do you think we see more bond portfolio purchases? Just to help all set some of the rising cash levels. Well, I think you would from us because again, I mean, you know, people were standing in line to buy bonds when they were zero, and why would we buy in the last two years. So we're going to continue to systematically add the bond portfolio because we have the ability to do it if you have the liquidity and the ability to do it.

Speaker Change: Well, I think you went from us because, again, I mean, you know, people were staying in line to buy bonds when they were zero and while we were buying the last two years. So, we're going to continue to systematically add the bond portfolio because we have the ability to do it. If you have the liquidity and the ability to do it,

Ty Afton: I mean, it's been a good time to have the bond portfolio, so we'll likely systematically continue adding to that each quarter as we have the cash and then liquidity to do that from our perspective.

Speaker Change: I mean, it's been a good time to have the upon portfolio, so we'll likely systematically continue adding to that to each quarter as we have the cash in and then we'll quickly do that from our perspective.

Woody Lay: Thank you. Great.

Woody Lay: And then just last the follow up on deposit.

Speaker Change: Great. And then just last the follow-up on the positive. I appreciate all the color in the open-end commentary. I think you said 90% of the CD portfolio reprises in the next nine months. Any additional detail you can provide on how much...

Shalene Jacobson: I appreciate all the color and the opening commentary. I think you said 90% of the TV portfolio reprises in the next nine months. Any additional detail you could provide on how much reprises in the in the next quarter. Yeah, what about 254 million will reprise of our CD portfolio? In Q4. So that's about 34% of our CD portfolio. That's 254 million currently has a weighted rate of 4.77%, and it will reprise anywhere between 3.55% and 4.2%. So we'll get quite a quite a savings their own deposit cost. Great.

Speaker Change: Re-priced in the next quarter.

Speaker Change: Yeah, about 254 million will reprise of our CD portfolio in Q4, so that's about 34% of our CD portfolio.

Speaker Change: That's $254 million currently has awaited rate of 4.77%.

Speaker Change: and it will reprise anywhere between 3.5% and 4.2% so we'll get quite a savings there on the deposit cost.

Woody Lay: That's all for me. Thanks, guys.

Speaker Change: Thanks, Grace. It's all for me. Thanks, guys. Thanks, buddy.

Matt Olney: Our next call is from Matt Olney with Stevens. Hey, thanks for everybody. More Matt.

Speaker Change: Our next call is from...

Speaker Change: Matt Alding with Steven's

Speaker Change: Hey, thanks for all your money. More ma'am.

Matt Olney: Hey, sticking with this deposit discussion. I'm just curious about the overall level of competition in your footprint with respect to deposit pricing. You said you lowered some of your promo rates a few weeks ago. Curious how much push back you're seeing, and then maybe the longer term.

Matt Alding: Hey, speaking with this deposit discussion, I'm just curious about the overall level of competition in your footprint with respect to deposit pricing. You said you lowered some...

Matt Alding: of your promo race a few weeks ago, curious how much push back you're seeing and then maybe longer term, curious about how you see the positive plan out and throughout the down cycle, as compared to what we just saw over the last two years in the episode. Thanks.

Matt Olney: Curious about how you see deposit bet is playing out throughout the down cycle as compared to what we just saw over the last two years in the up cycle. Thanks.

Ty Afton: I mean, Matt, we're seeing less deposit pressure as far as pricing, less aggressive pricing in our markets. I mean, rates are being coming down really across the board with our competitors, and we've certainly pulled rates back to, and that's been the case really for the last six to nine months. I mean, it's not as frantic as it was, certainly a year, a year and a half ago, from a competitive standpoint. There's still one offs out there and early market, but for the most part, much less pressure on the positive side.

Speaker Change: I mean, Matt, we're seeing less deposit pressures, as far as pricing, less aggressive pricing in our markets. I mean, rates are being coming down really across the board with our competitors, and we've certainly pulled rates back to, and that's been the case really for the last six to nine months.

Speaker Change: It's not as frantic as it was, certainly year and a half ago, from a competitive standpoint. There's still one offsound there, and there'd be a very market, but for the most part, let's less pressure on the positive side.

Shalene Jacobson: So, any heavy thing you want to add to that? No, I agree.

Shalene Jacobson: Shalene Jacobson, Nona Branch.

Shalene Jacobson: Now I agree.

Shalene Jacobson: I guess the second part of that was kind of longer term thinking about deposit based throughout the cycle in any any of the dots around around that of next year or two. Thanks. Matt, we had previously modeled sensitivity; you know, passing on it about 0.4% of any rate decrease.

Speaker Change: I guess the second part of that was kind of longer-term thing about you to possibly throughout the cycle and any of the thoughts around that of next year or two. Thanks.

Speaker Change: That we had previously modeled sensitivity, you know, passing on it about.

Speaker Change: Point 4% of any rate decrease. This past time around, we were a little bit higher than that, and we'll probably model a bit higher than that in the first part of 2025. Maybe slow it back down to point 4.

Shalene Jacobson: This past time around, we were a little bit higher than that, and we'll probably model a bit higher than that in the first part of 2025, maybe slow at that down to 0.4% sensitivity in the second half of 25. We're still kind of working through that, but that's what we're envisioning. Okay, that's helpful, Chilean.

Speaker Change: Sensitivity in the second half of 25, we're still kind of working through that, but that's what we're

Shalene Jacobson: Thank you for that.

Speaker Change: Okay, that's helpful, Shalene, thanks for that. And then on the long side, just remind us of the dollar amount of the loans that are floating that will reprise lower with the Fed's recent movement a few weeks ago.

Shalene Jacobson: And then on the loan side, just remind us of the dollar amount of the loans that are floating that will reprise lower with the Fed's recent movement a few weeks ago.

Shalene Jacobson: About 250 million, a little less than 250 million, is floating daily. Okay.

Speaker Change: About 250 million, little less than 250 million is floating daily.

Speaker Change: Okay, perfect.

Shalene Jacobson: and then just lastly on the expense side, I think a while back we talked about those expenses kind of targeting that two and a half percent of the assets. Just trying to appreciate how much of an opportunity that could be as you look into 2025. Well, I mean that remains our target; always has been. We're not, you know, we're not uncomfortable floating above that if we're shrinking the value sheet, which we've been doing the last two years.

Speaker Change: and then just lastly on the expense side, I think a while back we talked about those expenses kind of targeting that 2.5% of the assets, you try to appreciate how much of an opportunity that could be as you look into the 2025.

Speaker Change: Well, I mean, that remains our target always has been, we're not, you know, we're not uncomfortable floating above that, and we're shrinking the bouncy, which we've been done in the last two years, our current ratios are a little inflated from the ore expense.

Shalene Jacobson: It's our current ratios a little inflated from the ore expense, but I mean, we're, as we get back in the growth in a growth mode, we'll drive that down below that. But that two and a half percent remains our target of that, that's what you're asking. And, but that being said, we float above that and we know why. We're not going to dismantle programs we have or investments we're making in the future of the company and technology just to get the ratio down if we, if we know why it's above it. And we know kind of how we're going to offset that move back below our target, going forward.

Speaker Change: But I mean, we get back in the growth mode, we'll drive that down below that, but that's two and half percent remains our target, but that's what you're asking in.

Speaker Change: But that being said, we float above that and we know why we're not going to just matter programs we have, or investments we're making in the future of the company and technology, just to get the ratio down, if we know why it's above it and we know kind of how we're going to offset that move that back below our target going forward.

Matt Olney: Okay.

Matt Olney: Thanks for taking the questions. Thanks, ma'am.

Nona Branch: Thank you. Thank you for your questions. I will remind everyone. The recording of this call will be available by 1 p.m. Central time today on our investor relations page at gnt1.com. We appreciate you attending the call.

Nona Branch: This concludes it for today. Thank you.

Nona Branch: Goodbye.