Guaranty Bancshares, Inc. Reports First Quarter 2019 Financial Results

Guaranty Bancshares, Inc. GNTY, the holding company for Guaranty Bank & Trust, N.A., today reported financial results for the fiscal quarter ended March 31, 2019. The company's net income available to common shareholders was $5.3 million, or $0.45 per basic share, for the quarter ended March 31, 2019, compared to $6.5 million, or $0.55 per basic share, for the quarter ended December 31, 2018 and $4.4 million, or $0.39 per basic share, for the quarter ended March 31, 2018. The earnings per basic share during the first quarter of 2019, compared to the same period in 2018, were impacted by the issuance of 899,816 shares of common stock in connection with the completion of the Westbound Bank ("Westbound") acquisition on June 1, 2018 and by our repurchase of 219,030 shares of common stock between April 1, 2018 and March 31, 2019. Return on average assets and average equity for the first quarter were 0.94% and 9.11%, respectively, compared to 1.15% and 10.67%, respectively, for the fourth quarter of 2018 and 0.89% and 8.35%, respectively, for the same period during 2018.

"We are very pleased with our strong core deposit growth, continued expansion in our net interest margin, and strong asset quality metrics this quarter. We will continue to execute on our strategic plan of organic growth of loan and deposit relationships in our expansion markets, which will further improve our efficiencies and performance as we add additional scale. While loan demand was softer in Q1 than previous quarters, we still see overall positive trends and opportunities in our markets and Texas as a whole. Our company's stock valuation remains at what we see as a very attractive level, so we expect to continue executing on our previously announced stock repurchase plan," commented Ty Abston, the company's Chairman and Chief Executive Officer.

The company's growth in net earnings in the first quarter of 2019, as compared to the first quarter of 2018, was primarily attributable to an increase in net interest income, before the provision for loan losses, of $3.6 million. These items were partially offset by an increase in noninterest expense of $2.3 million, of which $1.8 million related to higher employee compensation and benefits and occupancy expenses during the quarter. The increase in employee compensation and benefits and occupancy expenses resulted from an increase of 44 full-time equivalent employees, from 419 as of March 31, 2018 to 463 as of March 31, 2019, of which 28 new employees were related to the Westbound acquisition, 11 were related to our two de novo locations in Austin and Fort Worth, Texas that were opened in the fourth quarter of 2017, and other employees that were added to support operational growth.

Net interest income in the first quarter of 2019 and 2018 was $19.0 million and $15.4 million, respectively, an increase of $3.6 million, or 23.65%. Net interest margin for the first quarter of 2019 and 2018 was 3.64% and 3.41%, respectively. Net interest income and net interest margin, on a taxable equivalent basis, were $19.0 million and 3.75%, respectively, for the first quarter of 2019. Our net interest income was positively affected by achieving higher increases in loan yields than for deposit costs. During the period, our loan yield increased from 4.83% as of March 31, 2018 to 5.46% as of March 31, 2019, a change of 0.63% while our interest bearing deposit costs increased from 1.06% to 1.58% during the same period, a change of 0.52%.

The provision for loan losses was $575,000 in the first quarter of 2019, compared to $500,000 in the fourth quarter of 2018 and $600,000 in the first quarter of 2018. The provision for loan losses is primarily reflective of organic growth during the respective periods. Nonperforming assets as a percentage of total loans were 0.31% at March 31, 2019, compared to 0.46% at December 31, 2018, and 0.64% at March 31, 2018.

Noninterest income decreased $611,000, or 14.64%, in the first quarter of 2019 to $3.6 million, compared to $4.2 million for the quarter ended December 31, 2018. The decrease was primarily attributable to $601,000 recognized in the prior quarter as other noninterest income from the sale of our Atlanta, Texas bank location and former Longview, Texas bank location. Further contributing to the decrease was a decline in service charges income of $113,000, or 12.03% from the prior quarter, partially offset by an increase in the net realized gain on sale of loans of $40,000, or 9.15% from the prior quarter.

Noninterest income decreased $103,000, or 2.81%, in the first quarter of 2019, compared to $3.7 million for the quarter ended March 31, 2018. The decrease was primarily attributable to a decrease in the net realized gain on sale of loans of $79,000, or 14.21%, from the same quarter in the prior year. Other noninterest income decreased $133,000, or 18.40%, from the same quarter in 2018 due primarily to a $263,000 negative adjustment in our SBA servicing asset fair value. These decreases were partially offset by increases in merchant and debit card fees and bank owned life insurance of $130,000 and $32,000, respectively.

Noninterest expense increased 6.37% in the first quarter of 2019 to $15.5 million, compared to $14.5 million for the quarter ended December 31, 2018. The increase resulted primarily from a $587,000, or 6.99%, increase in employee compensation and benefits and a $129,000 increase in software and technology expenses in the current quarter. These increases were partially offset by a $44,000, or 10.58%, decrease in advertising and promotions expense, from $416,000 in the previous quarter to $372,000 in the first quarter of 2019.

Noninterest expense increased $2.3 million, or 17.79%, in the first quarter of 2019, compared to the first quarter of 2018. The increase in noninterest expense in the first quarter of 2019 was primarily driven by an increase in employee compensation and benefits expense to $9.0 million, up $1.2 million from the same quarter of the prior year due in part to the Westbound acquisition during the second quarter of 2018 and to new employees at our two de novo locations in Austin and Fort Worth, Texas. Occupancy expenses also increased $598,000, from $1.9 million in the first quarter of 2018, to $2.5 million in the first quarter of 2019. The increase in occupancy expense is primarily due to an increase in depreciation expense, ad valorum taxes, janitor expense and building maintenance, a combined expense increase of $310,000, resulting mainly from the Westbound acquisition and new Austin and Fort Worth locations. Other increases are due to commencement of leases in Austin and Fort Worth and adoption of the new Accounting Standards Codification 842, Leases. The company's efficiency ratio in the first quarter of 2019 was 68.55%, compared to 68.99% in the same quarter last year.

Consolidated assets for the company totaled $2.31 billion at March 31, 2019, compared to $2.27 billion at December 31, 2018, and $2.00 billion at March 31, 2018. Gross loans decreased 0.23%, or $3.8 million, to $1.66 billion at March 31, 2019, compared to loans of $1.66 billion at December 31, 2018. Gross loans increased 18.15%, or $254.4 million, from $1.40 billion at March 31, 2018. Excluding the $154.7 million of loans acquired from Westbound, and the $10.2 million in loans sold with the Atlanta bank location, organic loan growth from March 31, 2018 to March 31, 2019 was $95.2 million, or 6.36%. Deposits increased by 4.85%, or $90.8 million, to $1.96 billion at March 31, 2019, compared to $1.87 billion at December 31, 2018. Total deposits increased 16.00%, or $270.7 million, from $1.69 billion at March 31, 2018. Excluding the $181.4 million of deposits acquired from Westbound, and the $32.4 million in deposits sold with the Atlanta bank location, organic deposit growth from March 31, 2018 to March 31, 2019 was $121.7 million, or 6.71%. Shareholders' equity totaled $250.3 million as of March 31, 2019, compared $244.6 million at December 31, 2018 and $207.4 million at March 31, 2018. The increases from the previous quarter and from March 31, 2018 were primarily the result of operating earnings and the issuance of common stock related to the Westbound acquisition on June 1, 2018.

(1) See Reconciliation of non-GAAP Financial Measures table.

(2) The efficiency ratio was calculated by dividing total noninterest expense by net interest income plus noninterest income, excluding securities gains or losses. Taxes are not part of this calculation.

(1) Excludes outstanding balances of loans held for sale of $1.2 million, $1.8 million, $826,000, $1.7 million, and $1.5 million as of March 31, 2019, and December 31, September 30, June 30, and March 31, 2018, respectively.

(2) Excludes deferred loan fees of $466,000, $560,000, $727,000, $857,000, and $1.0 million as of March 31, 2019, and December 31, September 30, June 30, and March 31, 2018, respectively.

(3) Restructured loans-nonaccrual are included in nonaccrual loans which are a component of nonperforming loans.

(1) Includes average outstanding balances of loans held for sale of $1.3 million and $1.7 million for the three months ended March 31, 2019 and 2018, respectively.

(2) Net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.

(3) Net interest margin is equal to net interest income divided by average interest-earning assets, annualized.

(1) Excludes the dilutive effect, if any, of shares of common stock issuable upon exercise of outstanding stock options.

About Non-GAAP Financial Measures

Certain of the financial measures and ratios we present, including "tangible book value per share" are supplemental measures that are not required by, or are not presented in accordance with, U.S. generally accepted accounting principles (GAAP). We refer to these financial measures and ratios as "non-GAAP financial measures." We consider the use of select non-GAAP financial measures and ratios to be useful for financial and operational decision making and useful in evaluating period-to-period comparisons. We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain expenditures or assets that we believe are not indicative of our primary business operating results or by presenting certain metrics on a fully taxable equivalent basis. We believe that management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, analyzing and comparing past, present and future periods.

These non-GAAP financial measures should not be considered a substitute for financial information presented in accordance with GAAP and you should not rely on non-GAAP financial measures alone as measures of our performance. The non-GAAP financial measures we present may differ from non-GAAP financial measures used by our peers or other companies. We compensate for these limitations by providing the equivalent GAAP measures whenever we present the non-GAAP financial measures and by including a reconciliation of the impact of the components adjusted for in the non-GAAP financial measure so that both measures and the individual components may be considered when analyzing our performance.

A reconciliation of non-GAAP financial measures to the comparable GAAP financial measures is included at the end of the financial statement tables.

About Guaranty Bancshares, Inc.

Guaranty Bancshares, Inc. is a bank holding company that conducts commercial banking activities through its wholly-owned subsidiary, Guaranty Bank & Trust, N.A. As one of the oldest regional community banks in Texas, Guaranty Bank & Trust provides its customers with a full array of relationship-driven commercial and consumer banking products and services, as well as mortgage, trust, and wealth management products and services. Guaranty Bank & Trust has 30 banking locations across 23 Texas communities located within the East Texas, Dallas/Fort Worth, Greater Houston and Central Texas regions of the state. Visit www.gnty.com for more information.

Cautionary Statement Regarding Forward-Looking Information

This communication contains forward-looking statements within the meaning of the Private Securities Litigation Reform 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 "outlook," or the negative version of those words or other comparable words of a future or forward-looking nature. These forward-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 Securities and Exchange Commission ("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; 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 failures or interruptions involving our information technology and telecommunications systems or third-party servicers; 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 statements are made as of the date of this communication, 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.

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