Executive Summary / Key Takeaways

• Robust NIM Expansion Amidst Strategic Patience: Guaranty Bancshares is demonstrating strong net interest margin (NIM) expansion, with Q2 2025 FTE NIM reaching 3.71%, up from 3.26% in Q2 2024. This is driven by decreasing deposit costs and the upward repricing of its loan and securities portfolios, with management projecting continued NIM growth of 1-2 basis points per month throughout 2025.
• Fortified Balance Sheet for Opportunistic Growth: The company has strategically de-risked and built substantial liquidity and capital, including a liquidity ratio of 18.8% and $1.3 billion in contingent liquidity. This strong financial foundation positions GNTY for organic growth in its resilient Texas markets and potential bolt-on acquisitions as economic uncertainties subside.
• Granular Deposit Base and Prudent Credit Quality: GNTY maintains a stable, granular core deposit base (31.6% noninterest-bearing deposits in Q2 2025) and robust asset quality, with NPAs to total assets at 0.33% and a conservative Allowance for Credit Losses (ACL) coverage of 1.29% of total loans, reflecting a cautious approach to credit risk.
• Technology-Driven Operational Efficiency: Investments in technology, including cybersecurity enhancements and tools to improve customer and operational efficiencies, are contributing to cost control and improved service delivery, as evidenced by decreasing amortization and telecommunication expenses.
• Value Creation Through Capital Allocation: Management perceives a disconnect between GNTY's stock price and intrinsic value, leading to an aggressive share repurchase program and a recently increased quarterly dividend to $0.25 per share, signaling a commitment to shareholder returns.

A Foundation of Resilience: GNTY's Texas Story and Strategic Posture

Guaranty Bancshares, Inc. (NYSE: GNTY), established in 1990 as the holding company for Guaranty Bank & Trust, N.A. (founded in 1913), has cultivated a deep-rooted presence across East Texas, Dallas-Fort Worth, Greater Houston, and Central Texas. The company's core business revolves around providing a comprehensive suite of commercial and consumer banking products, primarily funded by a diverse deposit base and deployed into a granular loan portfolio and investment securities. This long history of financial stability and community leadership has shaped its current strategic approach: to maintain a robust, well-capitalized, and highly liquid bank, poised to capitalize on economic upturns.

The Texas economy, GNTY's exclusive operating ground, remains a significant tailwind. Management consistently describes the state's economic landscape as "strong and growing," "vibrant," and "resilient," presenting numerous opportunities. This local strength, however, exists against a backdrop of national economic "noise and uncertainty," including tariff concerns, which have caused some borrowers to exercise caution and temper loan demand. GNTY's strategy, akin to its successful navigation post-2008 financial crisis, is to position itself defensively during uncertain times to be ready to play offense when conditions improve. This involves tightening underwriting, allowing non-core loan accounts to run off, and building substantial liquidity and capital.

GNTY's competitive positioning in the regional Texas banking market can be described as competitive yet niche. The company leverages its community-oriented approach, extensive branch network, and historical brand recognition to foster strong customer loyalty. This local expertise allows for quicker responsiveness to regional needs, potentially increasing market share in underserved areas and enhancing pricing power in local lending. While larger competitors like Prosperity Bancshares (PB) and Independent Bank Group (IBTX) may exhibit broader geographic reach or faster strategic adaptability through M&A, GNTY differentiates itself through personalized service and a diversified offering that includes agricultural and consumer loans, appealing to a wider client base. The company also faces indirect competition from fintechs and online banks, which offer digital-first solutions. However, GNTY's regional focus and established physical presence provide some resilience against fully digital models.

Operational Excellence and Technological Edge

GNTY's operational strategy is underpinned by a commitment to efficiency and customer-centric technology. While a traditional bank, its technological differentiators manifest in streamlined processes, enhanced digital offerings, and robust cybersecurity. The company has made "continued investments in technology software, tools to improve efficiencies for customers and operational departments and for cybersecurity enhancements." These investments are not merely expenditures but strategic enablers.

For instance, the company's ongoing project to aggregate telecommunication expenses through bundled contracts and negotiated rates has resulted in a 22.6% decrease in telecommunication expenses for the three months ended June 30, 2025, compared to the same period in 2024. This demonstrates a tangible benefit of technology-driven cost control. Furthermore, the decrease in amortization expense, partly due to fully amortized core deposit intangibles and a reduction in software amortization, highlights the long-term benefits of past technology investments reaching maturity. These operational efficiencies contribute directly to GNTY's profitability and competitive moat by lowering its cost structure relative to its revenue base. For investors, this signifies a bank that is not just growing but doing so smartly, leveraging technology to enhance its financial performance and maintain a lean operational profile.

Financial Performance: Margin Expansion and Prudent Management

GNTY's recent financial performance underscores its strategic patience and operational effectiveness. For the three months ended June 30, 2025, net earnings attributable to Guaranty Bancshares, Inc. were $10.0 million, or $0.88 per basic share, a significant increase from $7.4 million, or $0.65 per basic share, in the prior year quarter. This strong earnings growth was primarily fueled by a notable expansion in the net interest margin (NIM).

The NIM, on a fully taxable equivalent (FTE) basis, improved from 3.26% in Q2 2024 to 3.71% in Q2 2025. This 45 basis point increase was largely due to a 65 basis point decrease in the cost of interest-bearing liabilities, with the average cost of interest-bearing deposits falling from 3.32% to 2.76% over the same period. Concurrently, the average yield on the securities portfolio increased from 3.24% at December 31, 2024, to 3.45% at June 30, 2025, contributing to higher interest income from securities, which rose 32.8% to $4,656 thousand in Q2 2025 year-over-year.

Total noninterest income also saw a healthy increase, rising 20.9% to $5,560 thousand in Q2 2025 compared to Q2 2024. This was primarily driven by a $1.0 million restitution payment from a lawsuit settlement related to a 2015 acquisition. However, this was partially offset by $547 thousand in losses from interest rate swaption contracts entered into in connection with the proposed merger with Glacier Bancorp, Inc. . Noninterest expense remained largely flat, increasing only 0.5% to $20.7 million in Q2 2025, reflecting disciplined cost management despite investments in technology and merger-related expenses. The efficiency ratio for Q1 2025 was 66.78%, indicating a solid operational leverage.

The loan portfolio, while strategically managed for quality over quantity in recent periods, showed a slight increase of 0.48% to $2.14 billion at June 30, 2025, from $2.13 billion at December 31, 2024. New loan originations continue to command attractive yields, with a weighted average of 7.22% on $129.5 million in new loans in Q2 2025. Asset quality remains robust, with nonperforming assets (NPAs) to total assets at 0.33% in Q2 2025, and net charge-offs annualized to average loans at a low 0.05%. The Allowance for Credit Losses (ACL) stands at a conservative 1.29% of total loans, reflecting management's cautious stance on economic uncertainties.

Liquidity, Capital, and Shareholder Returns

GNTY's balance sheet is characterized by exceptional liquidity and strong capital, a deliberate outcome of its strategic positioning. The liquidity ratio, calculated as cash and cash equivalents and unpledged investments divided by total liabilities, stood at a healthy 18.8% as of June 30, 2025, a significant increase from 13.6% a year prior. This is further bolstered by $1.3 billion in total available contingent liquidity from various sources, including FHLB, FRB, and correspondent bank lines of credit.

The company's cash and cash equivalents increased by $47.2 million in the first six months of 2025, primarily due to a $54.5 million increase in federal funds sold, reinforcing its liquid position.

Capital levels are equally robust. Total equity increased to $331.8 million as of June 30, 2025, up 4.0% from December 31, 2024. Even if all unrealized losses on both available-for-sale (AFS) and held-to-maturity (HTM) securities were recognized, the total equity to average assets ratio would remain a strong 9.9%. This capital strength provides significant flexibility.

Management is actively returning value to shareholders. The quarterly cash dividend was increased to $0.25 per share in Q1 2025, up from $0.24 per share in 2024. Furthermore, the company has engaged in an aggressive share repurchase program, buying back 127,537 shares in Q1 2025, representing 1.1% of outstanding shares. Management explicitly notes a "disconnect between our current stock price and what we feel is the fair market value of our company," indicating a continued commitment to utilizing excess capital for buybacks when attractive earn-back periods are present.

Outlook and Strategic Horizon

GNTY's outlook for 2025 is one of continued financial strengthening and strategic readiness. Management is "modeling continued growth in our NIM throughout '25," expecting it to increase by "a basis point or two over the next several months," regardless of moderate rate cuts or flat rates. This confidence stems from the ongoing repricing of variable-rate loans and maturing certificates of deposit. For instance, $341 million in variable-rate loans are expected to reprice over the next 12 months at a new weighted average rate of 7.42%, a 106 basis point increase from their current 6.36%. Concurrently, $613 million in CDs repricing by year-end 2025, currently at a weighted rate of 4.224%, are expected to renew at approximately 3.65%, providing significant cost savings.

Loan growth is anticipated to pick up in 2025, with management "much more optimistic" than in the prior two years, citing a "very strong pipeline" in Q2 2025. While national uncertainties, particularly around tariffs and the upcoming election, may cause some short-term borrower caution, the underlying strength of the Texas economy is expected to drive demand. Deposit growth remains a core strategic priority, with a target of "2% to 5% kind of net growth in the deposit book for the year," driven by building granular, relationship-based accounts. The company also plans to systematically add to its bond portfolio, leveraging its liquidity to acquire attractive yields and add duration.

Expense growth is projected to be modest, "only about 1% or 2% next year," aligning with the long-term target of 2.5% of total assets. This disciplined approach, combined with anticipated NIM expansion, positions GNTY for strong earnings. The Zacks Consensus Estimate for 2025 EPS is $3.30, representing a 20.44% year-over-year increase.

A significant strategic development is the announced merger with Glacier Bancorp, Inc. (GBCI), expected to close in Q4 2025. This transaction, while introducing integration risks, also presents opportunities for GNTY to leverage a larger platform. Management's long-term vision, articulated as positioning the company to "grow another $1 billion, $2 billion over the next three to four years," encompasses both organic expansion and opportunistic bolt-on acquisitions, capitalizing on its strong balance sheet and market position in Texas.

Conclusion

Guaranty Bancshares stands at a pivotal juncture, having meticulously prepared its balance sheet for an anticipated economic resurgence in its vibrant Texas markets. The core investment thesis hinges on GNTY's proven ability to generate robust earnings through disciplined financial management, particularly its expanding net interest margin, and its strategic readiness for growth. The company's commitment to operational efficiency, bolstered by targeted technology investments, ensures a lean cost structure that enhances profitability.

While national economic uncertainties and the impending merger with GBCI present inherent risks, GNTY's strong capital, ample liquidity, and granular deposit base provide a formidable buffer. Management's clear guidance on NIM expansion, conservative credit outlook, and aggressive capital allocation through dividends and share repurchases underscore a confident approach to value creation. As the Texas economy continues its upward trajectory and broader market clarity emerges, GNTY's strategically positioned balance sheet and operational strengths are poised to unlock significant growth, making it a compelling consideration for discerning investors seeking exposure to a resilient regional banking franchise.