Guaranty Bancshares - Earnings Call - Q1 2025

Executive Summary

• EPS and revenue were above consensus; Diluted EPS was $0.75 vs $0.71 consensus and revenue was $32.06M vs $31.10M consensus, driven by continued NIM expansion and lower deposit costs. Bold beat: EPS and revenue beat consensus* [GetEstimates Q1 2025]*.
• Net interest margin (FTE) rose to 3.70% from 3.54% in Q4 2024 and 3.16% in Q1 2024, as CDs repriced lower and loan/securities yields improved.
• Asset quality remained strong: NPAs/Assets were 0.15% and ACL coverage was 1.32% of loans; ORE fully resolved with a minimal $184K loss.
• Dividend increased to $0.25 (from $0.24) and the company repurchased ~127.5K shares; liquidity ratio improved to 19.8% and contingent liquidity stood at ~$1.3B.
• Potential catalysts: continued NIM tailwinds (CFO expects 1–2 bps monthly), deposit growth of 2–5% in 2025, and potential further reserve releases if tariff uncertainty abates.

What Went Well and What Went Wrong

• What Went Well

  • Margin expansion: NIM (FTE) improved to 3.70% (Q1 2025) from 3.54% (Q4 2024) and 3.16% (Q1 2024), supported by lower cost of deposits and upward repricing of earning assets. “Our net interest margin continues to build…” — Ty Abston.
  • Asset quality resilience: NPAs/Assets at 0.15% and net charge-offs annualized at 0.02%; ORE resolved with a $184K loss; ACL coverage 1.32%.
  • Capital returns and liquidity: Dividend raised to $0.25, and 127,537 shares repurchased at $40.56; liquidity ratio increased to 19.8%; contingent liquidity ~$1.3B.

• What Went Wrong

  • Noninterest income declined 12.1% q/q due to lapping Q4 ORE-related gains and rental income; gains on loans also fell; debit fee increase was one-off from $400K MasterCard bonus.
  • Noninterest expense rose 6.7% q/q (+$1.3M), primarily employee comp/benefits (plan funding, payroll taxes, bonus accruals), offset by slight salary reductions; efficiency ratio worsened to 66.78% vs 62.23% in Q4.
  • Loans declined $23.0M q/q (lower borrower demand, tariff uncertainty) and $157.1M y/y (tightened underwriting, strategic non-renewals).

Transcript

Operator (participant)

Good morning. Welcome to the Guaranty Bancshares First Quarter 2025 earnings call. My name is Nona Branch, and I will be your operator for today's call. I would like to remind everyone that today's call is being recorded. After our prepared remarks, there will be a Q&A session. Our host for today's call will be Ty Abston, Chairman and Chief Executive Officer, and Shalene Jacobson, Executive Vice President and Chief Financial Officer. To begin our call, I will now turn it over to our CEO, Ty Abston.

Ty Abston (Chairman and CEO)

Thank you, Nona. Good morning, everyone. Welcome to our earnings call for Q1 2025. Guaranty achieved good results in the first quarter of this year. I'm very proud of our team and our continued effort to serve our customers and build new relationships across all of our markets in Texas. The Texas economy remains strong and growing. While there's certainly economic noise and uncertainty on a national level, so far we are not seeing negative impacts or signs. This quarter, we did highlight the granularity of our balance sheet, both in our loan book and deposit base, similar to how we've done in past uncertain times during COVID and two years ago when there were bank failures. We continue to see the granularity of our balance sheet as offering real resilience in uncertain times for our company. Our loan book did shrink a little in Q1.

However, our loan pipeline so far in Q2 is as strong as we've seen it in the last three years. We will see how the quarter turns out. Our net interest margin continues to build, and we're modeling for good results for the year, really regardless of whether we see rate cuts or see significant loan growth in our loan book. We did repurchase some shares in Q1, as we announced we were planning to do at the end of Q4 last year. We are currently not in the market and active in the market, but we do stand ready to re-enter the market if and when we decide it makes sense. Our capital, asset quality, and liquidity all stand at very strong levels. We continue to be well-positioned for future growth, while at the same time also being well-positioned for an economic slowdown, whichever we end up facing.

I'm going to turn it over to Shalene to go through the investor deck, and then we'll answer any questions you have. Shalene?

Shalene Jacobson (EVP and CFO)

Thanks, Ty. I'll start today with the balance sheet. As Ty mentioned, total assets increased about $37 million during the first quarter. Cash was up nearly $72 million, primarily due to loan and securities-related cash flows, as well as we had increases in deposit balances during the quarter of $12.2 million. Our net loans decreased $23 million, while our total securities portfolio decreased about $7.2 million overall. We did purchase $30.9 million in new AFS securities during the quarter, but that was offset by about $31.5 million in maturities, calls, and mortgage-backed paydowns over the entire portfolio. Unrealized losses on our AFS securities pre-tax decreased from $20.8 million at December 31 to $14.7 million on March 31, which was an improvement of about $6 million. Of course, you know we're not sure exactly where that's at today, but hopefully moving in the right direction there.

We also sold the one remaining ORE property that we had, which was a single-family home in the DFW market that had a book balance of $1.2 million during the first quarter. Our total equity increased by $6.7 million this quarter, resulting primarily from net income of $8.6 million. We had employee stock option exercises that netted us about $1.3 million and an improvement in other comprehensive income of $4.7 million due to the decrease in unrealized losses on the AFS securities. This was offset by stock repurchases that Ty mentioned of $5.2 million. We also paid dividends of $2.8 million during the quarter. We are happy to say that we did increase our dividend in the first quarter to $0.25 per share, which is up from $0.24 per share for each quarter in 2024.

Onto the income statement, the company earned $8.6 million in net income in the first quarter, which equates to $0.76 per basic share, down from $0.88 per share linked quarter and up from $0.58 per share in the first quarter of 2023. Compared to both the first quarter of 2023 and the linked quarter, we continue to have good improvements in net interest income, while non-interest income was down and non-interest expense was a bit higher, which I'll discuss more shortly. Our return on average assets was 1.13% for the quarter compared to 1.27% last quarter. Our return on average equity was 10.83% for the quarter compared to 12.68% in Q4. Our net interest margin was 3.7% in the first quarter, which is an increase from 3.54% in the fourth quarter and 3.16% during the same quarter last year.

The NIM increases resulted from the Fed lowering their rates by 75 basis points in late 2024, as well as continued repricing of our loans, securities, and certificate of deposit portfolios. The average yield on our interest-earning assets remained flat at 5.6% from the fourth quarter, while our cost of total deposits decreased 15 basis points from 2.11% in the fourth quarter to 1.96% in the first quarter. We also believe, and we've mentioned this the past few calls, that we've got some continued tailwinds in our NIM for the remainder of 2025, and we really expect it to continue to increase a basis point or two over the next several months.

The reason for our assumptions here are that, you know, aside from our $263 million in loans that float daily, we also have about $341 million in variable rate loans that reprice on different time intervals, but that we expect to reprice over the next 12 months. $341 million that we expect to reprice over the next 12 months. Those loans currently have a weighted average rate of 6.36%. Now, assuming rates just stay where they are and that all of that $341 million reprice according to their current loan terms and balances, the new weighted average rate 12 months from now on that pool would be 7.42%, which is an increase of 106 basis points. Now, on the cost of funds side, we also have $613 million in certificates of deposit that are repricing between April 1 and year-end. They currently have a weighted rate of 4.24%.

If all of those CDs were to renew into the same product at our current rates, the new weighted average rate will be approximately 3.65%. Of course, not all of the loans or CDs may reprice at those original terms, but that really helps illustrate our expectation for the continued NIM tailwinds over the next several months. Non-interest income decreased by $693,000 during the first quarter compared to the fourth quarter. This is primarily the result of elevated non-interest income in the fourth quarter from rental income that we were receiving on the Austin ORE property and then a gain on sale of that same property, which was sold during the fourth quarter. We also had a loss on sale of $184,000 during the first quarter of 2025 from the sale of that one remaining ORE property that added to that change quarter over quarter.

We also had service charges and gains on sale of mortgage and SBA loans that were down slightly, really due to lower volumes during the first quarter. We had debit income that was up during the first quarter of 2025 compared to the fourth quarter of 2024 and the first quarter of 2024. That is due to an annual Mastercard bonus that we received of about $400,000 during the first quarter of this year. In 2024, that was recorded during the second quarter. You will see an elevated debit card income during the second quarter of last year. Non-interest expense increased by $1.3 million in the first quarter compared to the fourth quarter, and that was primarily due to employee comp and related benefits. During the first quarter of every year, we fund and expense the company contribution to our Executive Incentive Retirement Plan .

We also have additional payroll tax expense in the first quarter that's related to our year-end employee bonus that's paid at the end of January. Both of those expenses accounted for about $575,000 of the linked quarter change. Again, those are consistently expensed or make a difference during the first quarter of every year. We are also partially self-insured for health insurance, which I mentioned last quarter. We were over-accrued at the end of 2024 due to lower-than-expected health claims. That resulted in a $446,000 reversal of health expense accruals in the fourth quarter of 2024, which we did not have in 2025. That resets in January of each year. We expect employee comp and benefit costs to be lower in subsequent quarters and also more consistent. Finally, our efficiency ratio this quarter was 66.78%. All right. On to our loan portfolio and allowance for credit losses.

As both Ty and I mentioned, gross loans decreased $23 million in the first quarter. You know, Ty spoke to this a little bit, but we certainly anticipated and saw a strong loan pipeline at the end of 2024, but demand for many of our borrowers has really slowed during the first quarter as a lot of them are waiting to see how the tariff uncertainty is going to impact their businesses and the overall economy. That being said, our balance sheet is really strong, and we've got very good liquidity and are ready to grow those loans when our borrowers are ready. Ty said our pipeline's very full right now, so we're really hoping we can get that going here soon. Non-performing assets continue to remain at very low levels. Our NPAs to total assets were 0.15% at March 31 compared to 0.16% at year-end.

The non-performing assets include both ORE and non-accrual loans. The sale of the property in Austin during the fourth quarter helped lead to the improvement there. The sale of our single-family ORE property in DFW helped reduce the ratio even more in the first quarter. Net charge-offs also remain low. Net charge-offs were 0.02% in the fourth quarter of the first quarter of 2025. They were essentially zero last quarter, and they were also 0.02% in the first quarter of 2024. Our non-accrual loans were up slightly to $4.8 million from $3.7 million as of year-end, and that represents 0.23%, less than a quarter of a percent of our total loans. The increase is primarily due to one single-family loan borrower that we're working on a solution for. We do not expect any losses on that loan. It is very well-collateralized.

Our substandard loans were up slightly, but fairly consistent with year-end. We did have a reverse provision for credit losses of $300,000 during the quarter, and we didn't change our qualitative factors at all. The decrease was resulting almost entirely from lower loan balances and stable credit trends. Our quarter-end ACL coverage is 1.32% of total loans, which is one basis point lower than our year-end percentage of 1.33%. You know, if the tariff situation is cleared up and we have some more certainty there and the economic outlook starts to improve, we do anticipate that we will adjust the qualitative factors at some point, which may result in future reverse provisions as well. Of course, that'll be offset if the loan portfolio starts to grow again. All right. On to deposits, liquidity, and capital. Our total deposits grew $12.2 million during the quarter.

Money market and savings balances increased 19.6% or $19.6 million. Sorry about that. DDA balances increased $11.5 million during the quarter, and our certificates of deposit decreased $18.9 million. Non-interest-bearing deposits continue to represent a good percentage of our total deposits. We had a ratio of 31.3% at quarter-end, up a couple of basis points from last quarter. With respect to overall deposit risk, Guaranty has a granular and historically stable core deposit base. At the end of the first quarter, we had just over 91,100 active deposit accounts that had an average account balance of just under $30,000. Our uninsured deposits also remain relatively low, excluding our Guaranty-owned accounts. Uninsured deposits were 26.7% of total deposits at quarter-end. As Ty mentioned, and I mentioned previously, our liquidity right now is great. We're ready for some loan growth.

We ended the quarter with a liquidity ratio of 19.8% compared to 16.5% at year-end. Our cash balances increased $72 million during the quarter to $217.8 million in total cash and cash equivalents. We also anticipate another $116 million in principal and interest cash flows from maturing securities between now and year-end that we'll either use for loan growth or to reinvest in securities or cash. We also have total contingent liquidity of about $1.3 billion that's available through the Federal Home Loan Bank, the Federal Reserve Bank, correspondent bank, Fed Funds lines, and a revolving line of credit. Finally, with respect to liquidity, you know, our total net unrealized losses on investment securities remains very reasonable at $41.7 million, of which $14.7 million is related to our AFS securities and included in AOCI on the balance sheet. Capital was also strong.

Like Ty mentioned, we used a portion of our excess capital in the first quarter to pay $0.25 per share dividend, and we also repurchased 127,537 shares of Guaranty stock, which represented about 1.1% of outstanding shares. This, of course, continues to add intrinsic value for our shareholders. Our total equity to average assets as of January 30, I'm sorry, March 31 was 10.5%, and our TCE to total assets was strong at 9.37%. This concludes our prepared remarks. I will turn it back over to Nona for Q&A.

Operator (participant)

Thank you, Shalene. Our first question is from Woody Lay with KBW. Woody, can you unmute your line?

Woody Lay (VP)

Hey, good morning, guys. Can you hear me? We can hear you. Good morning, Woody. Morning. Hey, wanted to start on the loan pipeline. It's encouraging to hear it's kind of at a multi-year high.

Any color on the mix of the pipeline and how that compares to the loan portfolio today?

Ty Abston (Chairman and CEO)

Woody, it's similar to the current composition of the loan portfolio. It's really across our footprint and really all four of our regions. It's pretty granular, you know, like our portfolio. But, you know, we just, you know, really after the November election, we just started seeing a really strong uptick in opportunities that made sense to us, loan opportunities across our footprint, and we continue to see that. That's probably muted some in the last couple of weeks, which makes sense. You know, as we said today, you know, we have a very strong pipeline, and we'll just see how that plays out. That's where we're really pleased with kind of where we are with the pipeline as of today.

Woody Lay (VP)

Yeah.You know, as you talk to your clients and try to get a sense of, you know, a sense of timing on when they could, you know, execute on these loans. In your opening comments, you made a comment about how the Texas markets are really strong. It's kind of the national uncertainty. I guess as you talk to your clients, like, what are they looking for to get comfortable in this current environment?

Ty Abston (Chairman and CEO)

I mean, I think they're, Woody, they're like every rest of us. I mean, there's just uncertainty. You know, if you don't turn on CNBC, they're seeing, you know, they're not seeing anything in their local markets that are really, you know, concerning at this point. Like everyone else, they, you know, they look and see what's happening on the national scene, and that changes, you know, their views.

I think everyone's just kind of on standby trying to see how this plays out. Assuming this gets, you know, this whole issue with tariffs gets resolved, the Texas economy is strong and robust and growing, and that should resume. I anticipate that will resume once that happens. Everyone, like I said, is in the same boat. I mean, we're just trying to kind of see how this plays itself out. I think the overall underlying economy is strong, and that's really the thing we can focus on from our company standpoint. We really don't bank a lot of multinational companies, obviously. Direct impact, we've been looking at that. We don't see any direct impacts from tariffs. Assuming we stay on this track, there would certainly be indirect impacts on the overall economy and all of our customers.

We do not see—we have not identified any direct impacts at this point.

Woody Lay (VP)

Got it. Last for me, just touching on the reserve, you know, I think you called out that if we were to get clarity on the economy, you would expect some reserve release. But, you know, assuming we are in the same position we are today, you know, 60 days from now, would you expect to build reserves just based on, you know, where the Moody's forecast is trending and any color there?

Ty Abston (Chairman and CEO)

Yeah, Woody, I would not expect to build reserves. I mean, we are still carrying effectively some of the COVID factors, and we kept those in from two years ago when we had some bank failures. We would not remove those, but continuing those, I could see that if things are currently where they stand.

I mean, it would take a pretty, pretty, you know, large systemic concern for us to, you know, increase our factors based on kind of where we see the quality of the loan portfolio and, again, just the overall economy in Texas.

Woody Lay (VP)

Got it.

Shalene Jacobson (EVP and CFO)

I can add on to that too. I mean, we've kept our qualitative factors at elevated levels because we wanted to be more conservative. Each time we started thinking about, you know, unwinding some of those economic factors that we put in based on, you know, situations, a new event would happen. It started with COVID, then it was the bank failures, then there was, you know, the election, and now these tariff uncertainties. We have kind of just left those economic factors at elevated levels throughout instead of unwinding them like some of our peers did.

But at some point, you know, if we start getting some certainty, then we'll look at unwinding those a little bit. Like Ty said, though, we don't anticipate increasing them.

Woody Lay (VP)

Got it. All right. Thanks for taking my question.

Ty Abston (Chairman and CEO)

Sure, Woody.

Operator (participant)

Okay. Our next questions will be from Matt Olney with Stephens. Matt, can you unmute your line?

Matt Olney (Research Analyst)

Yeah. Thanks. Good morning, guys.

Ty Abston (Chairman and CEO)

Good morning, Matt.

Shalene Jacobson (EVP and CFO)

Morning, Matt.

Matt Olney (Research Analyst)

On the loan balances, Ty, you highlighted the stronger loan pipelines, which is good to see. Within the one Q loan balance, I guess it was the C&I mix that drove the contraction. Just any more color on that C&I book? Were these company sales? Was it lower utilization? Just any color you can give us on that portfolio?

Ty Abston (Chairman and CEO)

It was really lower utilization. We just—we saw some paydowns in some of those C&I lines. Nothing specific.

It just—and that very likely reversed itself, but we just—for the quarter, we saw net paydowns in some of the utilization of lines.

Matt Olney (Research Analyst)

Okay. Appreciate that. I guess switching gears on the deposit side, we saw some positive deposit growth in the first quarter. I think most of your peers are still seeing some deposit contraction first quarter. Any color on kind of what you saw in one Q? Appreciate any kind of commentary you may have for deposit growth for the full year.

Ty Abston (Chairman and CEO)

Yeah. I mean, we continue to view core deposits as really key to franchise value in our company. That is a big part of our model to focus on core deposit relationships. We will open 10,000 checking accounts this year like we have every year for several years.

It's just a big part of our model to focus on core deposits across our footprint. In every market we serve, we're paying kind of mid, you know, kind of a mid-tier on rates. We're not the lowest rate in the markets. We're not the highest. They're really relationship-based deposits. Again, it's just, you know, I would anticipate we're probably going to see a 2-5% kind of net growth in the deposit book for the year because, again, you know, it's just a big part of our model to grow core deposit relationships, but do so in a very granular way as we kind of outlined.

Matt Olney (Research Analyst)

Okay. Thank you for that, Ty. I think on the prepared remarks, I think it was Shalene that mentioned expect some pretty good cash flows on the securities portfolio for the rest of the year.

I think it was $116 million. Would just love to hear any kind of preliminary thoughts you have on what the plan is for those cash flows and what you could do.

Ty Abston (Chairman and CEO)

I mean, our plan is to continue to add to the bond portfolio as it makes—you know, as we see that there's opportunities to add to that in sort of a dollar-cost averaging method as we've done the last three years. We're sitting with about 5% of the balance sheet in Fed Funds. We have a lot of liquidity available to grow the loan book and/or add to the bond portfolio. We are doing so, you know, in a systematic way each month. Again, we've been doing that. That's also helped our loan portfolio, our bond portfolio, excuse me, total yield.

We have gains in bonds because we've been able to add the last three years with our liquidity. There's been some bond market disruptions in the last few weeks, as everyone knows, and we were able to step in and buy some bonds during that period at some really, you know, attractive pricing. Our plan will be to continue to kind of do that each month in just a systematic way like we've been doing.

Matt Olney (Research Analyst)

Balance sheet liquidity looks great. Thanks for taking my questions.

Ty Abston (Chairman and CEO)

Sure, Matt.

Operator (participant)

Our next questions are from Michael Rose with Raymond James. Michael, can you unmute?

Michael Rose (Managing Director and Equity Research Analyst)

I am. Can you guys hear me?

Ty Abston (Chairman and CEO)

Yes, Michael. Good morning.

Michael Rose (Managing Director and Equity Research Analyst)

All right. Good morning. Thanks for taking my questions. Maybe just to start on credit, you guys have obviously always done a really good job if I look back in history.

You know, the longer this goes on, there's probably some risk. What are some areas of the portfolio that you guys are maybe doing a deeper dive on and maybe some lessons learned from COVID? Thanks.

Ty Abston (Chairman and CEO)

I mean, like I mentioned, we're looking at any customers we have that could have a direct impact to tariffs, any manufacturing customers we have, and just trying to game out any kind of concerns that they would have. I mean, at this point, we don't see anything that concerns us. Again, I think the granularity of our loan portfolio is a big part of the strength of our model. We just don't have, you know, outsized positions in many credits or in one particular sector or one particular region of the state.

We are concerned if this stays on this big, you know, this negative track for an extended period and the impact it would have on the national economy that ultimately would be the Texas economy and ultimately would be the markets we're in. That's no different than COVID or any other economic event that we've all, you know, faced. You know, we're very confident in the, you know, the strength of our portfolio, the strength of our underwriting, and the quality of our customer base. We have, you know, very resilient companies that we do business with. Some of them we've done business with multiple decades. They've been through multiple cycles, economic cycles, and they're well-positioned themselves to adjust. We don't have, you know, again, a lot of exposure to multinationals that have a direct impact, but certainly would have an indirect impact.

If, you know, this self-inflicted, you know, economic event happened in a way that damaged the economy overall, then we would certainly adjust to that based on what we saw on the environment that we're operating in. As of right now, nothing specific, but we're certainly being prudent and cautious and watching everything that we can to anticipate what may come down the pike.

Shalene Jacobson (EVP and CFO)

Michael, we also included some additional information in the quarterly highlights of the earnings release that talked about the granularity of our two largest loan segments, CRE and real estate one to four. I can also comment on, you know, the next couple down, our real estate construction loans. We've got about 650 of those with an average balance of $357,000. So it's pretty low.

You know, Matt, this may interest you, but our C&I loans, we've got 1,562 C&I loans, and they have an average balance of $139,700. Again, you know, our loan portfolio, we've got a lot of, you know, fairly low average balance loans. You know, if we do have those risks that pop up, there's not as much damage, hopefully.

Michael Rose (Managing Director and Equity Research Analyst)

I appreciate the color. Just switching gears, you guys stepped up the buyback a little bit this quarter. I think last quarter you mentioned that you could exhaust the authorization. I think you have about 950,000 shares left at the end of the first quarter. I think the program expires in April of 2026, so about a year from now. Just can you discuss your appetite? You know, obviously, banks have, you know, most bank stocks are down.

You guys are one of the few that's actually up year to date. Can you just kind of discuss the ability and the willingness to repurchase shares? Thanks.

Ty Abston (Chairman and CEO)

Michael, yes. Like I mentioned in the fourth quarter, we do consider that to be a good utilization of our excess capital. Our balance sheet has not been, you know, we've not grown our balance sheet intentionally the last two or three years, really. As we're creating excess capital and we see, you know, we see opportunities to buy our stock back, we just think that's a good utilization of resources. We're not in the market currently. We were at the beginning of the quarter.

We certainly plan, if we see, you know, the opportunity to buy our shares back, and that's kind of a capital allocation priority for us and would continue to be through that plan period.

Michael Rose (Managing Director and Equity Research Analyst)

Helpful. Maybe just last one for me. Certainly understand and appreciate the comments on expenses this quarter. You guys have previously talked about a 2.5% expense to average asset ratio. Is that kind of still what you're targeting? And assuming the revenue or the loan growth doesn't come through, like we all hope, you know, how much flex is there on the, you know, downside if the revenue doesn't come through? Thanks.

Ty Abston (Chairman and CEO)

I mean, Michael, yes. 2.5% to average to assets has always been probably for 20 years, has been kind of our bogey. That creates a nice ROA, you know, kind of going through the math.

There are times we went above that. There are times we've been 2.6, 2.7. There are times we've been 2.3, 2.4. We are not married to it in the sense that we'll make short-term decisions in making, you know, versus making long-term investments in the growth of the company. That is our speed limit, and we try to stay within that and always will. There are times we will fluctuate above or below it. With our margin, obviously, where it is and how it is building, we have some more flexibility there to continue to hit our earnings goals and be above that a little bit. You will never see us materially move above or below that 2.5% bogey as a goal.

Michael Rose (Managing Director and Equity Research Analyst)

All right. Thanks for taking my questions.

Ty Abston (Chairman and CEO)

Absolutely, Michael.

Shalene Jacobson (EVP and CFO)

Thank you.

Operator (participant)

Thank you for your questions.

I would like to remind everyone that the recording of this call will be available by 1:00 P.M. today on our investor relations page at GNTY.com. Thank you for attending, and this concludes our call. Have a good day.