More annual reports from Guaranty Bancshares:
2023 Report2 0 2 2 A N N U A L R E P O R T 4 Throughout our history, we’ve grounded ourselves in the principles and experiences that inform how we do business — and charted where we go next. We have a tried and true business model that has served our shareholders, customers, and employees well for 110 years. C O N T E N T S Letter to Shareholders Bancshares Board of Directors 2022 Year in Review Bank Locations 110 Years of Guaranty Stock Price, EPS, & Dividends Chart Financial Highlights Growth Trends Bank Board of Directors 04 08 09 10 12 14 16 17 18 4 5 discounted prices when opportunities are favorable having. Duration mismatch occurs as banks make for shareholders. In 2022, we repurchased 2% of our long-term, fixed-rate loans or buy long duration common shares outstanding. These transactions government bonds, but issue short-term deposits will continue to be very accretive to our remaining to fund those loans. This works well until rates go shareholders in the coming years, and we maintain up, however, and if rates go up materially, and the excess capital to repeat this strategy when the bank has too much concentration in these assets, opportunity is right. it can be catastrophic. These failures to properly We all witnessed interest rates soar in 2022 as manage interest rate and liquidity risks are nothing the Fed made significant policy changes to key new to banking. They were also at the root of the interest rates in an effort to combat inflation. The savings and loan failures in the 1980’s. At Guaranty, Fed increased interest rates seven times during the we took a more conservative approach to managing year for a total of 425 basis points or 4.25%. The our liquidity in 2022. We sacrificed some earnings velocity of this increase was unprecedented in by maintaining large balances of cash rather than recent history. The speed of these rate increases investing significant portions of that liquidity in over the year created several challenges for long term securities with yields between 1% and D E A R F E L L O W S H A R E H O L D E R S , The past year was eventful, to say the least, and many positive developments have continued managing the balance sheet of a bank and created 2% at the time. We believed rates could go up, to drive our Company’s growth and progress. However, as we entered the first quarter of 2023, we witnessed two bank failures, concerns about the health of the overall banking system and continued discussions of a recession. In the midst of these economic uncertainties and challenges, we remain committed to delivering value to our shareholders while fairly and consistently serving our customers and clients, as we have for 110 years. I will comment on the banking industry issues further into my letter, provide data that highlights how Guaranty is different from the banks that have had trouble and will explain the various strengths of our Company. But before that, I will start by reporting on the financial results and achievements of 2022. Guaranty Bancshares realized strong financial potential future loan losses during the last quarter results during the year. Total loans for the Company of the year. We felt this provision, while no credit grew $470.1 million during the year, to a record high losses were imminent or identified, was prudent of $2.4 billion. Total deposits ended the year with given the forecast of a possible recession in 2023. growth of $10.3 million and, likewise, a new record It was a tough year for the stock market in total of $2.7 billion. One of our primary goals for 2022, and our stock price was no exception. While 2022 was to exceed the previous year’s net income, we certainly added significant intrinsic value to which was a tall order given that 2021 included over our Company, our total return for the year was $7.8 million in PPP-related extraordinary income disappointing at -5.5%, including the $0.88 per and a reverse provision to our loan loss reserves of share dividend. This compares to a total return on $1.7 million. I’m pleased to say we achieved this goal. the NASDAQ of -32.5%, S&P 500 of -18.1%, and our The Company generated net income of $40.4 benchmark S&P Small Cap Banks Index of -11.8%. million, compared to $39.8 million in the prior year, While it’s nice to be down less than other indexes, it a $641,000 or a 1.6% increase. We accomplished this doesn’t change the economics for our shareholders. result even after taking a $3.4 million provision for However, we remain poised to repurchase shares at significant unrealized losses on government and even if they didn’t, we weren’t willing to take securities held in banks. The Fed’s rapid monetary the significant interest rate and liquidity risk those policy changes also created significant liquidity investments required for minimal increases in short and funding challenges for many banks, primarily term earnings. As a result, Guaranty weathered due to these unrealized losses. We saw the impact this increasing rate environment with a moderate of these factors play out in March 2023 with two impact to our balance sheet and liquidity. We held bank failures and one voluntary bank closure. only modest levels of long duration government Guaranty is in a stronger position because we securities as a percentage of our total assets and maintained our discipline and did not chase small capital, which positioned us to successfully navigate incremental earnings over the last two years at the the rapid change in rates, without a significant expense of taking on significant interest rate risk on negative impact to our balance sheet and capital. our balance sheet. The issue of duration mismatch in Unrealized losses on all government securities held assets versus liabilities is at the heart of the recent by our Bank is a moderate 18% of total capital, and bank failures and problems that some banks are our liquidity remains strong. IN THE MIDST OF THESE ECONOMIC UNCERTAINTIES AND CHALLENGES, WE REMAIN COMMITTED TO DELIVERING VALUE TO OUR SHAREHOLDERS WHILE FAIRLY AND CONSISTENTLY SERVING OUR CUSTOMERS AND CLIENTS, AS WE HAVE FOR 110 YEARS. TY ABSTON, C HA IRMAN OF THE BOARD & CEO 86 7 9 Another weakness exposed during the recent We will continue to manage our balance sheet ourselves accountable for obtaining the goals we Rose, former President of our Bogata bank location bank failures is the risk of an overly concentrated with an eye toward successfully managing risks, while set, which always appear lofty at the beginning of and key member of our credit administration deposit base, which can mirror the risk of an overly striving to achieve a fair return for our shareholders. the plan. However, to date, our team has always department, retired after 38 years with the Bank. concentrated loan portfolio. One of the troubled As I’ve said before, in a highly leveraged and found ways to get the job done and successfully These three individuals represent the best that is banks had nearly 90% of their deposits in uninsured cyclical business like banking, there’s no way to execute on each plan! Guaranty, and we thank them for their dedication accounts. In comparison, Guaranty has uninsured achieve consistency in financial performance while As I have also stated many times over the years, and commitment to helping make Guaranty what it deposits of 29%. We also have a very granular deposit maintaining a constant “risk-on” mentality. A risk-on the key to Guaranty’s past and future success lies in is today. They have the qualities that our Company’s base with 83,753 total deposit accounts carrying philosophy will maximize returns during periods of our ability to recruit and employ the right people. new leaders should strive to emulate. an average balance of $31,914. This granularity is a economic expansion, but you often give back some These individuals promote our core values and In conclusion, we are very pleased with our significant strength in determining the stability of a of those returns when the economy contracts. In culture, while thinking like an owner and staying 2022 results. While we expect some challenges and bank’s deposit base. Likewise, our loan portfolio, by extreme cases, as we have seen this year, you can focused on achieving results. This has been the headwinds in 2023, with projections of an economic design, is very granular. The average loan balance of end up giving back all of your returns. Discipline foundation of our success for more than 50 years. slowdown, we also remain open to potential the entire loan portfolio is $204,000. As of year-end, is required to moderate risk when necessary, even It is not a complicated formula, but it does require opportunities. Many economists forecast much we had only 12 loans with committed balances over when doing so seems overly cautious at the time. daily effort to maintain and execute. As past slower growth in most industries and further layoffs $10 million, only two of which were over $20 million, Our number one goal as management is to provide leaders leave the company, new leaders have to by companies as they right-size their operations and and no loans over our internally set loan limit fair returns for our shareholders on a consistent step up into those roles, a process that becomes for the slower economic environment. We are very of $30 million, which is significantly below our legal basis, and to limit the significant swings in financial more complicated as our company grows. Growth blessed to be in the state of Texas, which continues loan limit of $54 million. This intentional granularity performance that are so often witnessed in banks. adds complexity in banking. Year after year, we to enjoy a vibrant economy and should ride through and diversification of our loan portfolio is a strength Objectives for 2023 are to remain focused strive to maintain our core values and culture while an economic downturn much stronger than other that adds significant resilience during an economic on customer needs, with a strong emphasis on developing leaders at all levels within the Company states. For all the reasons listed above, Guaranty downturn. Much like holding additional liquidity, managing risks at all levels given the economic who can meet this challenge. remains well-positioned to navigate this uncertain maintaining a conservative position in our loan environment. In 2023 and beyond, we will continue During 2022, three individuals retired from our environment successfully. We’ve built a robust portfolio often comes at the expense of lower building our management team to prepare for future Company that I’d like to highlight. Bill Priefert, who franchise, with a banking footprint that covers the annual earnings than a more concentrated and growth cycles and management succession. We are is Chairman and CEO of Priefert Manufacturing in majority of the growth areas in Texas. I remain very less granular portfolio would generate. However, in the process of updating our five-year strategic Mount Pleasant, retired from our Company and optimistic about our future prospects. we are not willing to take on that riskier profile plan, which serves as a roadmap for future goals, the Bank’s board of directors after 40 years of Thank you, fellow shareholders, for your continued for whatever marginal improvements in earnings projected financial results, and strategic direction. service. Sara Neal, our Real Estate Department investment, support, and confidence in Guaranty it would generate. In each five-year strategic plan iteration, we hold Manager, retired after 41 years with our Bank. Joe Bancshares and Guaranty Bank & Trust. HISTORIC DOWNTOWN PARIS , TE XAS 33 .660 9° N | 95 .5 555 ° W TY ABSTON CHAIRMAN OF THE BOARD & CEO 8 9 G U A R A N T Y B A N C S H A R E S B O A R D O F D I R E C T O R S FOLLOWING THEIR LEAD B A C K R O W L R F R O N T R O W L R CAPPY PAYNE JIM BUNCH CHRIS ELLIOTT MIKE NOLAN JEFF BROWN CARL JOHNSON JR. TY ABSTON SONDRA CUNNINGHAM KIRK LEE BRAD DRAKE RICKY BAKER 2022 YEAR IN REVIEW F I N A N C E We achieved a record $40.4 million in earnings in Guaranty stock (GNTY) outperformed the 2022, up from $39.8 million in 2021. annual S&P US SmallCap Banks Index on total Despite the rapidly increasing interest rate environment and cost of funds, we maintained a net interest margin of 3.54% in 2022. We continued to pay cash dividends. Shareholders received $0.88 per share in 2022, up from $0.80 per share in 2021. We had excellent organic loan growth in 2022. Loans increased $470.1 million, or 24.6%, during the year. return performance. We maintained strong asset quality with a net charge-off to total loans ratio of only 0.03% for the year and a low problem asset ratio of 0.32% of total assets. Deposits increased $10.3 million during 2022. As we continue to build core deposit relationships in our newer markets, we are building on a stable core deposit franchise in our East Texas market, which represent about 57% of our total deposits. P E O P L E Gave back to our communities through We opened a loan production office and monetary donations and volunteer hours. additional office space in Westlake, Texas, to Contributions made during 2022 totaled more house our growing Austin-area banking teams. than $354,000 and employees volunteered more than 2,270 hours at 124 different organizations. We appointed a Community Development Officer whose focus is to identify community outreach We were named one of Texas Monthly’s “Best opportunities in all our banking markets. 100 Companies to Work for in Texas” for the fourteenth straight year. T E C H N O L O G Y We integrated several new platforms to our technology stack, including Zelle®, a digital payment network; Unqork®, a no-code programming platform; VMware® host hardware, which powers our production application servers; Duo® single sign-on (SSO), which enhance security for in-house and third-party systems, and increased capacity with Fortigate® firewalls and Cisco® core switches. Senior Executive VicePresident & CFOGuaranty Bancshares, Inc. President & CEOBWI, Inc.PresidentElliott Auto GroupChairman of the Board & CEOGuaranty Bancshares, Inc. InvestmentsSenior Vice President & Chief Culture OfficerGuaranty Bank & Trust, Inc.CEOLamar Companies, LLC PresidentGuaranty Bancshares, Inc.Managing PartnerRoseRockPrincipalBaker & Johnson, CPAKRB Investments, LLC 10 12 B A N K L O C A T I O N S 11 W H E R E T H E R E ’ S A W AY, THERE’S GUARANTY CENTRAL PLAZA, PARIS DFW E AST T EXAS DOWNTOWN GEORGETOWN CE N TRA L T EXAS H O USTO N EAST TEXAS REGION Bogata Commerce Hallsville Longview New Boston Paris (2) Pittsburg Sulphur Springs Mount Pleasant (2) Texarkana (3) Mount Vernon CENTRAL TEXAS REGION Austin Georgetown Lakeway Bryan College Station (2) DALLAS / FORT WORTH REGION Dallas Addison Denton (2) Fort Worth Rockwall Royse City DENTON COUNTY COURTHOUSE SAM HOUSTON STATUE, HERMANN PARK HOUSTON REGION Houston Houston Galleria Conroe Katy 12 13 1 1 0 Y E A R S O F G U A R A N T Y History may be cyclical, but for 110 years, our Bank has provided strength and stability for our customers, employees, and shareholders. We’ve embraced technological changes and planned for different economic events and volatility that has allowed us successfully to grow and to serve more communities within Texas. We are very proud of our long history, highlighted with some key milestones below, and look forward to the future. 1929 Guaranty holds Great depression begins $454,870 in deposits Art, Jonice and Bill come together and start to build today’s Guaranty 1991 Computer programmer Tim Berners-Lee introduces the World Wide Web Ty Abston elected Chief Executive Officer Expansion into Central Texas region Expansion into Houston region The Guaranty State Bank opens in Mt. Pleasant, Texas 1951 Color TVs are available to the public Additional services are added, including a night depository, conference rooms available for customers, safe deposit boxes Expansion begins 2008 Guaranty reaches Expansion into in Northeast Texas The Financial Crisis of 2008 begins $1 billion in assets DFW region 2001 Apple first releases iTunes 1913 Statement of Condition card for The Guaranty State Bank 1950 Guaranty Bond Bank Art Scharlach, Jonice Crane and Bill Jones 2010 Members of the executive management team 2019 New corporate location in Addison, TX 2023 Transferred our GNTY stock listing to the New York Stock Exchange 14 15 STOCK PRICE, EPS, AND DIVIDENDS Stock Price $40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 - Per Share $4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 - STOCK PRICE* * Pre-IPO stock prices are based on third-party valuations as of December 31 of each respective year. EARNINGS PER SHARE** DIVIDENDS PER SHARE** ** Earnings per share and dividends per share prior to 2021 have been adjusted to effect the 10% stock dividend in the first quarter of 2021 *** 2014 dividends paid and payout ratio excludes a $1.00 special dividend paid to shareholders in connection with the termination of subchapter S election. G R E G G C O U N T Y C O U R T H O U S E , L O N G V I E W 3 2 . 5 0 0 7 ° N , 9 4 . 7 4 0 5 ° W 16 17 FINANCIAL HIGHLIGHTS (IN THOUSANDS, EXCEPT PER SHARE DATA) 1 0 - Y E A R A S S E T G R O W T H C H A R T DOLLARS IN THOU SANDS ASSETS O PERATIN G RESULTS Net interest income Provision for loan losses Non-interest income Net realized gain (loss) on securities Non-interest expense Earnings before provision for income taxes Income tax provision Net earnings Core earnings1 AT YE AR EN D Total assets 2018 2019 2020 2021 2022 $68,916 $78,870 $89,982 $95,558 $107,829 2,250 15,303 (50) 56,774 25,195 4,599 20,596 27,495 1,250 13,200 (1,700) 2,150 16,973 23,037 24,576 23,485 (22) — — 172 62,525 66,522 73,278 79,907 32,057 33,297 48,556 49,257 5,778 5,895 8,750 8,834 26,279 33,307 27,402 40,261 39,806 40,423 39,034 50,154 $2,266,970 $2,318,444 $2,740,832 $3,086,070 $3,351,495 Loans and loans held for sale, net of allowance 1,647,239 1,693,162 1,837,279 1,880,205 2,347,401 Investments in securities Total deposits Stockholders’ equity 396,139 368,174 380,795 526,469 697,935 1,871,480 1,956,804 2,286,390 2,670,827 2,681,154 244,583 261,551 272,643 302,214 295,558 Weighted average common shares outstanding2 12,719,300 12,803,900 12,219,420 12,065,182 11,980,209 5 - Y E A R G R O W T H T R E N D S OT HER FIN A NCIAL DATA Return on average total assets Return on average stockholders’ equity Loans to deposits Loan loss reserves to loans Net interest margin, fully taxable equivalent Tier 1 capital to average assets Efficiency ratio Charge-offs net of recoveries PE R S HARE DATA Net income2 Market price (value based on year end numbers) Tangible book value2 Cash dividends2 0.97% 9.03% 88.68% 0.88% 3.50% 10.16% 67.37% $458 $1.62 29.82 15.96 0.55 1.13% 10.37% 87.20% 0.95% 3.69% 10.29% 65.23% $(301) $2.05 32.88 17.76 0.64 1.07% 10.39% 81.65% 1.80% 3.77% 9.13% 58.86% $331 $2.25 29.95 19.74 0.71 1.36% 13.72% 70.24% 1.59% 3.51% 9.18% 61.00% $1,486 $3.30 37.58 22.09 0.80 1.24% 13.76% 87.43% 1.34% 3.54% 8.77% 60.85% $609 $3.38 34.64 21.85 0.88 1. Pre-tax, pre-provision, pre-securities gain (loss), and pre-PPP related extraordinary income 2. Periods prior to the stock dividend issued during the first quarter of 2021 have been adjusted to give effect to the 10% stock dividend TOTAL ASSETS DOLLARS IN MILLIONS TOTAL LOANS 3 DOLLARS IN MILLIONS $2,267 $2,318 $2,741 $3,086 $3,351 $1,661 $1,709 $1,872 $1,912 $2,381 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 TOTAL DEPOSITS DOLLARS IN MILLIONS CORE EARNINGS 4 DOLLARS IN MILLIONS $2,671 $2,681 $1,871 $1,957 $2,286 $50.2 $40.3 $39.0 $33.3 $27.4 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 3. Total gross loans, including loans held for sale 4. Core earnings defined as pre-tax, pre-provision and pre-PPP related net earnings ENTERED BRYAN / COLLEGE STATION MARKET$3,600,000$3,200,000$2,800,000$2,400,000$2,000,000$1,600,000$1,200,000$800,000$02012201320142015201620172018201920202021ENTERED DFW METROPLEX MARKETENTERED AUSTIN AND FORT WORTH MARKETSENTERED GREATER HOUSTON MARKET2022$400,000 18 19 G U A R A N T Y B A N K & T R U S T BOARD OF DIRECTORS DELIVERY OF ANNUAL REPORT This Annual Report is being delivered to shareholders of Guaranty Bancshares, Inc. (the “Company”) in connection with the 2023 Annual Meeting of Shareholders and should be read with the Company’s proxy statement for the meeting and Annual Report on Form 10-K, copies of which accompany this Annual Report and have been filed with the Securities and Exchange Commission (“SEC”). This Annual Report is also available on our website www.gnty. com under the heading “Investors – Financial Information.” The Company will mail additional copies of this Annual Report to its shareholders upon request. FORWARD-LOOKING STATEMENTS This Annual Report may contain forward-looking statements within the meaning of the Private Securities Litigation Re- form Act of 1995. These forward-looking statements reflect our current views with respect to, among other things, future events and our results of operations, financial condition and financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “out- look,” or the negative version of those words or other comparable words of a future or forward-looking nature. These for- ward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. Such factors include, without limitation, the “Risk Factors” referenced in our most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q, other risks and uncertainties listed from time to time in our reports and documents filed with the SEC, and the following factors: business and economic conditions generally and in the financial services industry, nationally and within our current and future geographic market areas; economic, market, operational, liquidity, credit and interest rate risks associated with our business; natural disasters and adverse weather, acts of terrorism, cyber-attacks, an outbreak of hostilities, a public health outbreak (such as COVID-19) or other international or domestic calamities, and other matters beyond our control; the composition of our loan portfolio, including deteriorating asset quality and higher loan charge-offs; the laws and regulations applicable to our business; our ability to achieve organic loan and deposit growth and the composition of such growth; increased competition in the financial services industry, nationally, regionally or locally; our ability to maintain our historical earnings trends; our ability to raise additional capital to execute our business plan; acquisitions and integrations of acquired businesses; systems fail- ures or interruptions involving our information technology and telecommunications systems or third-party services; the composition of our management team and our ability to attract and retain key personnel; the fiscal position of the U.S. federal government and the soundness of other financial institutions; and the amount of nonperforming and classified assets we hold. We can give no assurance that any goal or plan or expectation set forth in forward-looking statements can be achieved and readers are cautioned not to place undue reliance on such statements. The forward-looking state- ments are made as of the date of this Annual Report, and we do not intend, and assume no obligation, to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events or circumstances, except as required by applicable law. DIVIDENDS CALENDAR Dividends on Guaranty Bancshares, Inc. common stock are payable, if paid, quarterly. INDEPENDENT AUDITORS Whitley Penn TRANSFER AGENT Computershare Investor Services 8343 Douglas Avenue Suite 400 Dallas, Texas 75225 P. O. Box 50500 Louisville, KY 40233 Shareholder Services 800-962-4284 B A C K R O W L R CHRIS ELLIOTT President Elliott Auto Group JIM BUNCH President & CEO BWI, Inc. BRIAN MASON Managing Director Boone Creek Investments, LLC CHUCK COWELL Vice Chairman & Senior Executive Officer CARL JOHNSON, JR. Principal Baker & Johnson, CPA JOSH BRAY Entrepreneur M I D D L E R O W L R CARL SMITH Investments EDDIE PRIEFERT President Priefert Manufacturing Co., Inc. JEFF BROWN Managing Partner RoseRock CAPPY PAYNE Advisory Director, Senior Executive Vice President KIRK LEE Vice Chairman & Chief Credit Officer BRAD DRAKE CEO Lamar Companies, LLC F R O N T R O W L R SHALENE JACOBSON Advisory Director, Executive Vice President, & CFO MIKE NOLAN Investments TY ABSTON Chairman of the Board & CEO SONDRA CUNNINGHAM Board Secretary, Senior Vice President, & Chief Culture Officer RICKY BAKER KRB Investments, LLC
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