Guaranty Bancshares, Inc. (NASDAQ:GNTY) Q4 2022 Earnings Conference Call January 17, 2023 11:00 AM ET
Company Participants
Ty Abston – Chairman & CEO
Cappy Payne – Senior Executive Vice President & CFO
Shalene Jacobson – EVP & CFO of the Bank
Conference Call Participants
Michael Rose – Raymond James
Brady Gailey – KBW
Matt Olney – Stephens
Brad Milsaps – Piper Sandler
Operator
Good morning, and welcome to the Guaranty Bancshares’ Fourth Quarter 2022 Earnings Call. My name is Nona Branch, and I will be your operator for today’s call. This call is being recorded. After the prepared remarks, there will be a Q&A session.
Our host for today’s call will be Ty Abston, Chairman and Chief Executive Officer of the Company; Cappy Payne, Senior Executive Vice President and Chief Financial Officer of the Company; Shalene Jacobson, Executive Vice President and Chief Financial Officer of the Bank.
To begin our call, I will now turn it over to our CEO, Ty Abston.
Ty Abston
Thank you, Nona. Good morning, everyone, and again welcome to our fourth quarter earnings call for Guaranty Bancshares. We did have a year that we’re very proud of. Our quarter did have some noise in it that we’re going to go over explain our presentation. And then we’re going to talk a little bit about our projections for 2023. We’ll get into our slide deck and go through that and then we’ll open up for Q&A.
So, Cappy, why don’t you start that?
Cappy Payne
Okay. Thank you, Ty. Let’s briefly hit some of the highlights of the balance sheet first and I’ll go over the income statement. We do have some of those highlights on the slide deck here, if you’re looking on your PC.
Our total assets for the year ended at $3.4 billion that was down for the quarter, about $39 million, but it is up for the year $265 million. Lot of that came from an increase in loans. We had a really good year and loan growth. We were up for the quarter $112 million, this is ex-PPP and warehouse lending. And for the year, we were up $553 million, about 30%.
And look at some of the details of that, we did have growth in all four of our regions. So we were proud of that and do have emphasis in activity in all four of those regions. You can see in the earnings release, we do list a loan composition chart. And, of course, most of that loan growth is real estate based. And again, you can see the components being CRE, construction, development and so forth.
On the bond portfolio, it did show a decrease during the quarter. Like, we told you last earnings release, we had about $120 million in treasury, short-term and treasuries that matured. They were at a pretty low rate. So actually the yield on the portfolio increased, but the volume was down about $133 million for the quarter. Year-to-date though, our year-end balances were up about $175 million year-over-year in the bond portfolio.
Then looking at the liability slide, probably the notable change, obviously, is what people are looking at in deposits. We did have a deposit decrease during the quarter of $109 million about $89 million of that, largest majority was in non-interest bearing DDA balances and about $20 million in interest bearing balances. Some of that was just — we knew some of that was coming. There’s just a restructuring and just a positioning of some funds that got invested elsewhere.
I’ll talk a little bit about some of the calls related to that, but kind of a comment on there. We normally see public fund money increased during the fourth quarter. We did see it increase just not as much as normal and probably that’s indicative of what we’re seeing, a lot of a lot of our customers at least being faced with is alternative investment rates on other investments. Public fund money is most of it’s contracted at a certain rate, and a lot of what they’re seeing was a lot higher than what they — what our contracted rate is, so some of that money went elsewhere.
Again, our public fund money is not a large part of our deposits, about 11% $300 million over — on our $2.7 billion in total deposits. But I think it’s just kind of just to show you what we’re all seeing in the banking world as far as competition. Our year-to-date, our deposits were up about $10 million and our DDA balances actually were up $38 million in total year-over-year. So our non-interest bearing balances still account for 39% of our total deposits, which again helps in that funding cost.
Our Federal Home Loan Bank borrowings did increase for the quarter. That’s going to be driven mainly by that loan growth and some deposit decrease during fourth quarter. And at year end, they were $290 million in total fundings from Federal Home Loan Bank. Our shareholder equity increased obviously due — in the quarter due to earnings, offset by the dividend that we did pay. We paid another $0.22 cash dividend.
We also did have a slight improvement in our accumulated other comprehensive income, which is the unrealized loss in our bond portfolio. So our tangible common equity ended the year at a ratio show of 7.87% down a little bit during the year due to that significant increase in the unrealized loss in our bond portfolio, accumulate other comprehensive income.
That $0.22 dividend that we paid during the quarter made a total of $0.88 for the year, that’s up 10% year-over-year. And looking back at our history, we’ve got about a 30 plus year history of increasing annual dividend. I think all the two years of those 30 plus years, we did not increase it. Every other year, we increase it. Those two years, we just left them flat. We did not decrease them, but we didn’t increase them. And that $0.88 dividend based on current yield is about — based on current price is about a 2.5% yield on that return.
Then looking over at the income statement, you can see our fourth quarter net earnings were $8 million which was down from the previous three quarters, that $8 million is $0.67 per share. That the decrease or the significant event during the quarter was related to a provision that we made of $2.8 million due to our CECL modeling.
Shalene will give you a little more detail on that in just a minute, so I’ll not talk the detail on it. But because of that, that event, if you look at our pre-provision, pre-tax pre-PPP activity, which is our net core earnings. We’ve been putting this chart in there each quarter for the last two years. And you see that our quarterly earnings pre-provision pre-tax were $12.6 million for the quarter. Our year-to-date was $50.2 million and that compares from previous year fourth quarter of $10 million and previous year 2021 of $39 million. So year-over-year, that’s about $11.2 million increase, which is 29%.
So then looking at our year-to-date return on average assets and again on net earnings, we were 1.24% stated earnings, 1.24% for 2022, for the year compared to 1.36% for 2021. Again, a significant factor in that change would be the difference in the 2022 provision that we made versus the 2021 release that we did, which those two components were a swing of about $3.9 million.
Return on average equity for the year was 13.76% compared to 13.72% in 20 21. Again, we had we had really good earnings. As Ty said, we’re proud of the year we did and both these two years 2022 and 2021, the net earnings were significantly higher than previous years.
So then looking at the components, like, what everyone’s focused on, is our net interest margin. In Q4, it did show a decrease of 2 basis points. It was 3.57% down from 3.59% in linked quarter, but up from the same quarter last year of 18 basis points. Loan yields are an increasing nicely as rates are rising, and we talk about that in the earnings release. Shalene will again talk some more detail on that and what rates are currently doing. But I think probably more of the focused attention is on our cost of interest bearing deposits, probably.
Some we look at all-the-time and made some decisions on this quarter that we’re not exactly what we had projected as didn’t, as I think as many banks though, saw we did see that outflow of deposits and to remain competitive we increased our cost of interest bearing deposits for the quarter more than we had projected that we thought we were going to do prior to the quarter. The interest cost of interest bearing deposits for the quarter were 108 basis points. In Q4, that’s up from 59 basis points in Q3, significant increase, but those are some decisions we made to remain competitive in the various markets that we’re in, and we’re seeing all sorts of competition, both in small bank and big, and larger banks, and then to protect our existing core deposit base.
And I think we put in the press release our interest bearing cost of deposits beta increased 40% during the quarter, which is significantly higher because we made those decisions both in increasing some CD rates and our money market rates more than what we had projected. I guess a note to point out when using our non-interest bearing balances, the total cost of funds is 64 basis points. Again, we put that in the earnings release, that’s up from 35 basis points linked quarter. So the — so I’d make a total deposit beta increase of 23%.
And looking at non-interest income, it still remains lower than what we saw in 2021 and the first half of 2022. If you look out the — if you take out the extraordinary items, Q3 and Q4 were very consistent with each other. I think we’re going to continue to have challenges in our non-interest income category back certainly last year when the loan — the mortgage rates were lower. We had a lot more gain on sale. If we look at year-over-year, our gain on sale in ‘22 was 55% lower than it was in ’21, that’s about a $3 million swing. So we’re projecting the lower volume going forward and mortgage activity and related fee income as we look at 2023.
We did have some positive trends other than that on the non-interest income though. The debit card volume continues to increase and show good volumes. And our fiduciary income is pretty stable even in an unsteady stock market that we’ve experienced in the last half of 2022.
On the expense side, we did have a little bit of elevated expenses in Q4, which sometimes will traditionally we do. We — each year and we give raises in the fourth quarter starting in the first part of the fourth quarter in October. As we did this year when they’re warranted, they were generally higher — the razors were generally higher this year than what we’ve seen in prior years, obviously due to inflation and really just the competitive pressures that we’re seeing in some staff positions.
Our health care costs this year, as we told you in prior quarters, up a little bit this year over last year. So we had a little bit of catch up in Q4 to be properly funded period (ph). And then the other category that you’ll notice in there is our software, our technology. We’re constantly looking at our software providers and opportunity, and we did make some upgrades in our core and other systems that added some cost in that category. So that’s a recap of the income statement.
So I’ll turn it over to Shalene.
Shalene Jacobson
Thank you, Cappy. Next, I’ll cover some of the highlights of our loan portfolio credit quality and the allowance for credit losses. As Cappy mentioned, our loan demand continued to be strong in the fourth quarter because loans in the pipeline from earlier in 2022 continued to close and fund up during the quarter, but our pipeline is certainly slowing down now, partially because of the higher rates, but also because we’re really tapping the brakes on growth as we prepare for a likely downturn in the near future.
As you all know, the Texas economy is still doing relatively well, but we aren’t totally immune to downturns either. Therefore, we’re tightening our underwriting standards and really being conservative with balance sheet growth for 2023 and Ty will provide a few more thoughts on the loan outlook for 2023 on the next slide in a few minutes.
Overall, our loan yields are trending upwards. Our weighted average loan yields increased this quarter to 5.2% on the total portfolio, which is up from 4.96% in the third quarter. But the weighted average rate of new loan originations in the fourth quarter was 6.53% which is 88 basis points higher than the weighted average rate of 5.65, that was booked in the third quarter. And then in December, after the additional Fed hikes, we’ve been booking loans closer to the 7.5% rate on average.
Our next bullet talks a bit about rate sensitivity of our loans. We have around $1.5 billion of loans that are fully floating or that are adjustable at various states in the future. Of the $1.5 billion, $256 million is fully floating and the rest is adjustable at future dates. Of the $1.3 that’s adjustable of future dates, about $213 of that is contractually set to adjust during 2023 along again with the $256 of fully floating loans.
Non-performing assets continue to remain relatively low at 0.32% compared to 0.28% in the prior quarter. A large portion of our non-performing assets, which are primarily non-accrual loans, consisted the four loans I’ve mentioned in prior quarters that were acquired from Westbound Bank back in 2018.
Those four loans are 75% SBA guaranteed and they’re collateralized by two loans or two hotels in Houston. The loans have total balances of $6.7 million of which are non-guaranteed exposures $1.7 million and we’ve got about $1 million reserved on those. We don’t really expect there to be any material loss, if there is any loss on those as we continue to work through those problem loans.
And then we also have a new $1.4 million land loan that was downgraded to non-accrual during the fourth quarter. The loan has low LTV and we expect the guarantors who we believe are pretty strong to pay off that loan in the very near future. So we don’t expect any losses on that one either.
Our net charge-offs and our net charge-offs to average loans ratio also continue to be very low this quarter. Next step is the allowance for credit losses. As Cappy mentioned, we had a $2.8 million provision for credit losses during the fourth quarter. We also had a $600,000 provision in Q3. We didn’t have any provision in Q2, and we had $1.25 million release in the first quarter. So interesting how much can change in a year, but the total provision expense for 2022 ended up being $2.15 million for the year.
So in addition to the loan growth during the quarter, we adjusted our CECL model to incorporate economic forecasts for a recession during 2023. In the fourth quarter, there appeared to be consensus among economists that a recession would occur. And there was even a survey was published by The Wall Street Journal back in October that cited 65% of the economists that they surveyed who expected a recession.
So that consensus in the fourth quarter among other factors that we looked at provided us with greater support for adjusting our forecasts as well. However, we’ve historically had very minimal losses in prior downturns, and we really don’t anticipate any significant losses during this potential downturn either. Our ACL coverage was 1.34% of total loans at the end of the quarter compared to 1.29% in the prior quarter.
So next, I will turn it over to Ty to talk about 2023 and asset liability management.
Ty Abston
So, thanks, Shalene. So for the coming year, like, we’ve been saying, we’re anticipating slower growth, the loan growth we had in fourth quarter really was those were credits primarily that were approved in the first half of ‘22 that have been funding up their equity portion. So that’s really a majority of that. We are seeing a slower pipeline in ‘23 as we would expect. Like Shalene said, our state is overall doing well, but it going to slow here, like every other part of the country.
We are seeing deposit challenges. We do, a big part of our models as we do have a strong core deposit base, but like everyone else, we’re having to compete with the market and we’re in markets where banks are paying pretty aggressive rates. While we’re not leading that, we’re certainly defending our core deposits because a lot of depositors quite frankly have been earning next to nothing in the last few years and are ready to get some yield. And they’re also looking at what the treasury market is offering.
And so we’ve seen lot of liquidity being pulled out of the system just in the treasury market where people are moving into treasuries that normally wouldn’t. So we expect some net interest margin compression in ‘23. We think it’s manageable, but we just — it makes sense to us that we’re going to continue to see those as we continue to reprice loans, but we also see our liabilities and deposits cost us more.
We did have good earnings in ‘22 as we mentioned. Our goal when we started the year was to try to improve on ‘21 because ‘21 had $5 million or $6 million extraordinary income. Once we saw we looped that, then we felt it was prudent to go ahead and look at our factors and our CECL model going into ‘23. And so that’s what we did in the last quarter. And like Shalene said, we do think that it’s a real strength that our ALCI (ph) is very manageable. And not only where we are today, but also even where we would look — what we would look like and shock an additional 100 and 150 basis points increase in rates. Very manageable, which means our capital continues to be very strong.
I’ll stop with that and then we’ll open up for questions.
Question-and-Answer Session
Operator
Thank you, Ty. It is now time for our Q&A session of our call. Our first call will be from Michael Rose with Raymond James. Michael, you can unmute.
Michael Rose
Hi. Thanks. Can you hear me?
Ty Abston
Yes. Hey, Michael.
Michael Rose
Good morning. Thanks for taking my questions. Hope you’re well and Happy New Year. Just wanted to obviously dig into the deposit discussion. I understand that the cost of interest bearing deposits were certainly up. Do you have a sense for what they were at the end of the year? And then kind of as a corollary to that, kind of what gives you confidence that you can expect balances to kind of be stabilized to maybe, have some slight pressure here. I mean, would you expect to fill with some higher cost learning so sources just given kind of the pressure on betas and costs and things like that. And I just wanted to get some context there. Thanks.
Ty Abston
Well, I’ll talk about the deposit balance, Michael. I think, well, we’re seeing and we’re putting emphasis on our [indiscernible] with our production people is to focus more on deposits and loans. I think we’ll — we’re still out there trying to grow our deposits and gain customer bigger customer base. So I think we’ll continue to have challenges with the run offshore that we talked about with either alternative investment or increased funding cost because they put the money into a CD or something that they hadn’t been in the last few year, but our emphasis will continue to be on our production people who go out there and get more customers.
Cappy Payne
Yeah. Michael, I would just add to that. I mean, we’re — like every bank, I mean, we’re seeing real pressure on the deposit side. We do have a core funding source in East Texas, but we’re seeing deposit pressure out there too. It is still various. We still have a very stable deposit platform and we’ve been playing somewhat defensive with our rates. But this fourth quarter, we decided to be a little more aggressive and try to get in front of it. So we think we’ve slowed that down, but we still have quite a bit of our deposit base nearly 40% in DDA.
So non-maturing deposits continue to be a strong part of our overall deposit structure, but we’re going to defend our core relationships because a lot of it is just the reality that customers haven’t seen any yield in three or four years and they’re looking forward. And so even if you have core — strong core funding base, you’re going to have real headwinds when it comes to your funding cost with everything going on in the velocity of increase in rates that we’ve seen in the last few months.
Michael Rose
Okay. And maybe just kind of a follow-up to that. The margin was down a little bit Q-on-Q, but it seems like with maybe some of the other balance sheet actions even with the deposit pressure that you would expect the margin to maybe move up a few basis points because the slide reads plateau in the second quarter. And then maybe fall from there just directionally, is that kind of a way we should probably be thinking about it?
Ty Abston
That’s generally what we’re thinking, Michael. I think we’ll pulled off a little bit on some details on that going forward just because we don’t know the extent of how we’re going to react with rate changes in the next few months too.
Michael Rose
Okay. And then maybe just one more for me. I think we can kind of figure out what the expenses are based on the expense to asset guide. But just on the fee income, obviously, some greater headwinds. You guys had kind of talked about it, I believe it was the range of, 22 to — $23 million to $24 million for fee income next quarter, but it sounds like it’s going to be a little bit less than that just given some of the market pressures and other things that you mentioned in your prepared remarks. Do you have kind of an updated range for what that could be for 2023? Thanks.
Cappy Payne
I think we’re going to be in the 22 to 23 range on fee income. That is what we have budgeted going forward.
Michael Rose
Okay. I’ll step back. Thanks for taking my questions.
Ty Abston
Sure. Thanks, Michael.
Operator
Our next questions will be from Brady Gailey with KBW. Brady, you can unmute your line.
Brady Gailey
Hey. Good morning, guys.
Ty Abston
Hi, Brady.
Brady Gailey
I just wanted to start with the expense base. Your guidance of 2.5% of assets is basically where you were at in the fourth quarter and you’re not expecting much asset growth in 2023. So that, that kind of backs in the flat expenses versus the 4Q run rate, which I don’t know, maybe seems a little optimistic just given the inflation headwinds. But is that the right way to think about it? Maybe expenses will be flat from here $10?
Cappy Payne
From Q4, yeah, Brady. I think that’s our — that’s what we’re looking at in 2023 based on no — or certainly a lot less growth in assets. So that 2.5, we’re comfortable with the 2.5% guidance.
Ty Abston
But Brady, let me add this to that. I mean, across the board, we see headwinds with our expenses. We see headwinds with fee income and with NIM. And I think that’s pretty universal in my opinion with what banks are going to be faced within ‘23. And it’ll be up to us to go through that and create a good return. But you just – there’s headwinds really in all of those key areas of our balance sheet and income statement and so that’s we’re a little less optimistic as far as just projecting that of where things go land in ‘23, because of the unknowns with where these rates are going, how they’re going to settle out.
Brady Gailey
Okay. All right. And then I know you all made some changes in your restructure pieces of mortgage and SBA and fee income. Is there anything notably different that we’ll see out of those two segments this year. I know both are facing headwinds, but I know you’ve restructure both of those groups. Anything we should expect in that for this year?
Ty Abston
Nothing specific. It’s just going to be a tough year for both those areas.
Brady Gailey
Yeah. All right. Great. Thanks, guys.
Ty Abston
Sure. Thanks, Brady.
Operator
Our next question will be from Matt Olney with Stephens. Matt, you can unmute your line.
Matt Olney
Hey, thanks. Good morning, everybody.
Ty Abston
Good morning, Matt.
Matt Olney
Can you hear me, Matt?
Ty Abston
Yes. We can hear you.
Matt Olney
Okay. Great. Thanks. Cappy, I think you mentioned previously there were some treasuries that matured in the fourth quarter. Any more color on when those when those matured? Was it kind of throughout the quarter or was it weighted towards the front half or back half? And then what was the average yield on those treasuries that matured in the fourth quarter?
Cappy Payne
Shalene, do you have that? I think you might have that in front of you?
Shalene Jacobson
We had $70 million mature on November 30 and another $20 million, I believe, that matured on November 24. I don’t have the yields in front of me, but I can get that to you.
Ty Abston
They were pretty low [indiscernible] this first year.
Cappy Payne
That was really short term treasuries bought in the first of the year. So, yeah, I think it will be a low yield.
Matt Olney
Okay. And I think in the deck, you also talked about more securities maturing in 2023. Is any more — anymore color on that, is it throughout the year kind of consistently or is it weighted towards the front half or back half of the year?
Shalene Jacobson
The treasuries are weighted towards the front half of the year. I believe they’re about $50 million. I’m pulling that up though so I can let you guys know if you have another question in the meantime.
Matt Olney
Okay.
Ty Abston
But the dollar amount she’s referring to there though in the deck is throughout the year.
Matt Olney
Got it. Okay. Well, I can shift over to loan growth, I guess, to buy Shalene some time here. But on the long…
Shalene Jacobson
Sorry. I was able to pull it up real quick. So we’ve got $50 million in treasuries that are maturing in March, April, and May, and then another $20 million in September. And the ones that matured in November, the yield on one was 0.666 and the other was 0.880.
Cappy Payne
They were, yeah, low yields.
Matt Olney
Got it. Okay. That’s helpful, Shalene. Thank you for that.
Shalene Jacobson
Welcome.
Matt Olney
And then the loan growth that we talked about before just any more color, should we assume the loan growth is going to be stronger in the front half of the year versus the back half versus what you see right now? You mentioned kind of intentional slowing of that from some of your borrowers. Just even more color on kind of the pace of it throughout the year.
Cappy Payne
I think that’s fair to look at it that way, Matt, is that loan growth that we have would be probably the first half of the year and be slight to a possible decline in the second half of the year is depending on how things play out.
Matt Olney
Okay. And then just I’m also curious about your the strategy around the FHLB advance. I think it’s $209 million (ph) sounds like you could kind of maintain that balance for a while, but would love to appreciate maybe the puts and takes and kind of what’s in the budget versus, different options that you could see throughout the year on that.
Ty Abston
It’ll depend on the timing of any type of loan or deposit change. But again, as we said in there, we got a $100 million plus in bonds rolling-off. The FHLB, we’re just using a short term catch all, and — I think that rate at dollar amount will stay pretty consistent to decreasing a little bit throughout the year. And we just keep it on a short term basis.
Matt Olney
Okay. Thanks, guys. Appreciate your help.
Ty Abston
Thanks, Matt.
Operator
Our next question is from Brad Milsaps with Piper Sandler. Brad, you can unmute your line.
Brad Milsaps
Hey. Good morning. Am I coming through?
Ty Abston
Yes, Brad. Yeah. Good morning.
Brad Milsaps
You guys have addressed most everything. I apologize if I missed this. But just curious, Cappy, I know you didn’t buyback any shares during this quarter. We’re more active early in the year, given kind of a lack of balance sheet growth, what – any more appetite or is it still kind of a wait and see approach there?
Cappy Payne
Pretty much a wait and see, Brad. We have a metric we’re looking at, and we’ll get in the market if we think it’s prudent. But we were not there during Q4, so we didn’t have — wouldn’t have any shares. But like I said, we bought back, was it 250,000 shares, I believe for the year. So we keep our same metrics out there, but we’ll just have a wait and see how to do.
Brad Milsaps
Got it. And then maybe sort of a bigger picture question for Ty. I knew last year your goal was to earn basically a $1 more in 2022 than you did in ‘21 and you guys did that, had a great year. I think everyone knows that ‘23 is going to be more challenging. Just kind of curious, what you would — maybe not so much in net income dollars, but, kind of where do you want to see the bank 12 months from now.
I know it’s a pretty murky picture, but kind of, what would you classify as a successful year for the energy as it just sort of getting to the other side of this with a bigger capital base, a bigger reserve, just ready to take whatever e-comm approach that I just – just kind of curious if you could give us kind of a bigger picture outlook, maybe similar to what you did in ‘22?
Ty Abston
Yeah, Brad, I would say that, I mean, our main goal in ‘23 is to really have strong asset quality come through this cycle without any significant losses. We’re going to be building reserves as we see it’s prudent, have good earnings. We’ll see what that actually turns into because like I said, there’s headwinds across the board. But the other side of this, have stronger capital, stronger reserves and maintain strong asset quality to be positioned to go back on offense when things start going another direction, but it’s going to be very much a defensive year for us at least.
And I think probably a lot of banks as we’re really trying to defend our core funding base, really defending asset quality, and trying to defend earnings and from just the different expense structures that have been under pressure the last couple of years and obviously fee income. So across the board, it’s a year, it’s going to be a year that our goal will be to, be in a better place than we are today, and that’s saying a lot going through what could be an economic downturn in the storm.
Brad Milsaps
That’s helpful. Thank you guys. Appreciate all the color.
Ty Abston
Sure, Brad.
Operator
We have another question from Matt Olney.
Matt Olney
Thanks. Thanks for the follow-up. Just sticking with this bigger picture theme, Ty, I guess, the bank’s been able to maintain this return on assets above 1% now for a number of years. You mentioned all the headwinds from lots of directions. Just curious about your expectations if you think you can continue to maintain this ROA north of 1% with all the headwinds out there?
Ty Abston
So, Matt, I don’t think we would go below 1%, but now that being said, there’s a lot of unknowns. And so depending on the reserves, we feel prudent that we need to put into our reserve account during the year. We’ll obviously be looking at expenses very closely and we’ll — we’re going to manage those aggressively. And the rest of it is just the market side of, from mortgage to SBA, different income departments. There’s just not a lot of opportunity out there right now. So I don’t see us dropping below 1% because we’re going to be pulling our levers to avoid that, but I can’t say it wouldn’t happen either.
Again, they’re just – it’s not the lack of clarity of – that we obviously had during COVID, but there is a lot of unknowns out there with everything going on until we see where the Fed’s going to, land with rates and kind of how that, how hard or soft this landing is, we’re just being pretty cautious in how we think about things going forward. I will say during COVID, we set aside $13 million in reserves and we didn’t actually have any losses.
So the fact that we set it reserves aside in ‘23 are just part of, as part of the CECL modeling and I can see a setting beside bit more reserves if we see further deterioration economy, whether that turns into actual credit loss or not will be our primary focus to see that doesn’t. But so there’s — that’s a that’s a long way of saying I really don’t know the answer to that question, but certainly that would be a goal that we would try to defend would be 1% ROA.
Matt Olney
Yeah. Thanks that commentary, Ty. And I kind of just following up on that around CECL and the allowance. You mentioned in 2020 kind of the big — the big build there. I think you got the ACL ratio up to that, that 180% level in 2020. I know CECL is kind of always evolving, but just curious you think that’s still is, is a 180 number still for the realm of possibility here this year? Or do you think you’ve — this is a model that’s kind of evolved over the last few years, which would make that less likely?
Ty Abston
I think it’s less likely. I think the worldwide pandemic was a black swan event that deserved a lot of real conservative assumptions would — where things were going. I think this is as dire as that. That being said, again, we’re looking at a lot of unknowns from the economic standpoint. We keep coming back to the fact that we’re proud, labor in Texas because Texas economy overall is strong.
So I’m hopeful that on the other side of this, we fare better than most parts of the country, but this, there’s just a lot of things, a lot of uncertainty out there that creates some uncertainty on our part. But I don’t think it’s near as dire’s something that we were dealing with in 2020 with which was COVID and — but we’re just we’re being cautious with how we look at it because there’s a lot of unknowns. And again, the velocity of these rate increases and how the pads pull the liquidity out of the system and we’re such, it’s such scale, that’s somewhat unprecedented, and that’s the part that makes me a little cautious.
Matt Olney
Understood. Okay. Thanks, guys. Appreciate your help.
Ty Abston
Thanks, Matt. Absolutely, Matt.
Operator
Thank you for your questions, and I would like to remind everyone that the recording of this call will be available by 1 P.M. today on our Investor Relations page at gnty.com. Thank you for attending, and this concludes our call.
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