For the fiscal year ended December 31, 2017
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
to.Commission File Number: 001-38087
GUARANTY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Texas | 75-1656431 | |
(State or other jurisdiction of | ||
| incorporation or organization) | (I.R.S. employer identification no.) | |
16475 Dallas Parkway, Suite 600 | ||
Addison, Texas | 75001 | |
(Address of principal executive offices) | (Zip code) | |
(888) 572 - 9881
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class of Securities | Trading Symbol | Name of Each Exchange on Which Registered | ||
Common Stock, par value $1.00 per share | GNTY | NASDAQ Global Select Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes☒ No☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 under the Exchange Act. (check one)
Large accelerated filer | ☐ | Accelerated filer | ☒ | ||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||
Emerging growth company | |||||
☒ | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes☐ No☒
The aggregate market value of the shares of common stock held by non-affiliates based on the closing price of the common stock on the NASDAQ Global Select Market on June 30, 2017,2020, the last day of the Registrant's most recently completed second fiscal quarter, was approximately $353.3$254.6 million.
At March 15, 2018,10, 2021, the Company had 11,058,95612,053,597 outstanding shares of common stock, par value $1.00 per share.
Documents Incorporated By Reference:
Portions of the registrant’s Definitive Proxy Statement relating to the 20182021 Annual Meeting of Shareholders are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent stated herein. Such Definitive Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year ended December 31, 2017.
GUARANTY BANCSHARES, INC.
TABLE OF CONTENTS
PART I | Page | |
Item 1. | 1 | |
Item 1A. | 17 | |
Item 1B. | 42 | |
Item 2. | 42 | |
Item 3. | 43 | |
Item 4. | 43 | |
PART II | ||
Item 5. | 43 | |
Item 6. | 45 | |
Item 7. | 48 | |
Item 7A. | 82 | |
Item 8. | 83 | |
Item 9. | 84 | |
Item 9A. | 84 | |
Item 9B. | 85 | |
PART III | ||
Item 10. | 85 | |
Item 11. | 85 | |
Item 12. | 85 | |
Item 13. | 85 | |
Item 14. | 85 | |
PART IV | ||
Item 15. | 86 | |
86 | ||
Item 16. | 88 | |
89 | ||
F-1 | ||
PART I
ITEM 1. BUSINESS
Our Company
Except where the context otherwise requires or where otherwise indicated, references in this Annual Report on Form 10-K to “we,” “us,” “our,” “our company,” the “Company” or “Guaranty” refer to Guaranty Bancshares, Inc. and our wholly-owned banking subsidiary, Guaranty Bank & Trust, N.A. and the terms “Bank” and "Guaranty Bank & Trust" refersrefer to Guaranty Bank & Trust, N.A..
We are a bank holding company, with corporate headquarters in Addison, Texas and operational headquarters in Mount Pleasant, Texas, and additional executive offices in Dallas and Bryan, Texas. Through our wholly owned subsidiary, Guaranty Bank & Trust, a national banking association, we provide a wide range of relationship-driven commercial and consumer banking, as well as trust and wealth management, products and services that are tailored to meet the needs of small- and medium-sized businesses, professionals and individuals. The Bank currently operates 2831 full service banking locations in East Texas, Central Texas, and the Dallas/Fort Worth metroplex.metropolitan statistical area (MSA) and the Houston MSA. As of December 31, 2017,2020, we had total assets of $1.96 billion,$2.74 million, total net loans of $1.35$1.87 billion, total deposits of $1.68$2.29 billion and total shareholders’ equity of $207.3$272.6 million.
We completed an initial public offering of our common stock in May 2017 as an emerging growth company under the JOBS Act. Our common stock is listed on the NASDAQ Global Select Market under the symbol "GNTY."
Our History and Growth
Guaranty Bank & Trust was originally chartered as a Texas state banking association over a century ago in 1913, and converted its charter to a national banking association in 2012. Guaranty was incorporated in 1990 to serve as the holding company for Guaranty Bank & Trust. Since our founding, we have built a strong reputation based on financial stability and community leadership. Our growth has been consistent and primarily organic, both through growth in our established markets and the entry into new markets with
de novo banking locations. In 2013, we expanded from our East Texas markets by opening a de novo banking location in Bryan/College Station, Texas. In 2017, we opened de novo banking locations in Fort Worth and Austin, Texas. In late 2020, we opened a second de novo location in Austin and plan to open a third de novo location just outside of Austin in the town of Georgetown, Texas during the second quarter of 2021. We have achieved organic growth by enhancing our lending and deposit relationships with existing customers and attracting new customers, as well as cross-selling our deposit, mortgage, trust and wealth management and treasury management products.We have also supplemented our organic growth and leveraged our strong deposit base with strategic acquisitions during the past five years. In 2015, we acquired both Texas Leadership Bank and DCB Financial, allowing us to expand our footprint into the Dallas/Fort Worth MSA. In 2018, we entered the Houston MSA through our acquisition of Westbound Bank. Our expansion strategy has enabled us to access markets with stronger loan demand, achieve consistent growth, maintain stable operating efficiencies, recruit top bankers, preserve our historically conservative credit culture, and provide shareholders with stable earnings throughout credit cycles.
| Institution Acquired | Location | Date Completed | Acquired Assets | Acquired Loans | Acquired Deposits | Number of Branches | ||||||||||||
| (Dollars in millions) | ||||||||||||||||||
| Texas Leadership Bank | Dallas/Fort Worth | April 2015 | $ | 76,715 | $ | 43,568 | $ | 65,496 | 1 | |||||||||
| DCB Financial | Dallas/Fort Worth | March 2015 | $ | 130,170 | $ | 118,154 | $ | 94,451 | 2 | |||||||||
| The First State Bank | Hallsville, Texas | July 2013 | $ | 32,027 | $ | 10,735 | $ | 28,880 | 2 | |||||||||
Since our initial expansion outside of East Texas in 2013, we have grown our network of banking locations from 18 banking locations in 11 Texas communities to 2831 banking locations in 2024 Texas communities. Additionally, we recently announced the entry into a definitive agreement for the acquisition of Westbound Bank and its four banking locations in four different communities in the Houston, Texas market, which is described in more detail below in "
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Our Community Banking Philosophy and Culture
We focus on a community-based relationship model, as opposed to a line of business model, because we believe the community-based relationship model promotes an entrepreneurial attitude within our Company while providing personal attention and solutions tailored to our customers. Our culture is one of employee ownership and it is something we take very seriously. In 2016, we formally documented our culture in a book called “The Guaranty Culture,” which we give to all prospective new hires and directors before they join our team so that they clearly understand who we are, how we work, what we believe, how we make decisions and what we admire in people.
We believe a great bank requires the right amount of two forms of capital: financial and human. We understand that our ability to successfully deploy our financial capital is directly related to our ability to bring the right talents together to lead our teams. This focus on human capital has rewarded us with a cohesive group of directors, officers and employees that we believe is our greatest asset. We have invested in a robust management trainingdevelopment program designed to develop comprehensive bankers who understand all aspects of our operations and embrace our core values. The training program generally lasts 18-2412-18 months and includes rotations through each primary department of the Bank. Successful graduates of our training program are typically promoted to a managerial position upon completion and we currently have graduates in management, lending and operational roles. Several of the Bank’s market presidents and managers are graduates of our training program.
During 2020, we continued to expand and grow the offerings provided via Guaranty University, an online professional and continuing education resource for our employees. In addition, our second class of our Leadership Development Program (LDP) graduated in November 2020. The LDP program caters to our Senior Vice Presidents including department heads, market leaders and lenders and has proven to be a valuable source of growth and improvement to our leadership participants. In 2021, we plan to launch the Emerging Leaders Program for our VP associates in all departments. The Emerging Leaders Program is an in-depth year-long course in which employees who exhibit leadership aptitude participate in online courses, in-person leadership classes and team building activities that allow them to learn about and improve upon various leadership traits and skills.
We have developed a network of banking locations strategically positioned in separate and distinct communities. Each community where we have a banking location is overseen by a local market president or manager, and we emphasize local decision-making by experienced bankers supported by centralized risk and credit oversight. We believe that employing local decision makers, supported by industry-leading technology and centralized operational and credit administration support from our corporate headquarters, allows us to serve our customers’ individual needs while managing risk on a uniform basis. We intend to repeat this scalable model in each market in which we are able to identify high-caliber bankers with a strong banking team. We empower these bankers to implement our operating strategy, grow our customer base and provide the highest level of customer service possible. We believe our organizational approach enables us to attract and retain talented bankers and banking teams who desire the combination of the Bank’s size and loan limits, dedication to culture, commitment to our communities, local decision-making authority, compensation structure and focus on relationship banking.
Growth and Expansion Strategies
Our strategic plan is to be a leading Texas bank holding company with a commitment to operate as a community bank as we continue to execute our expansion strategy. Our expansion strategy is to generate shareholder value through the following:
• | Maintain Focus on Organic Growth. Focusing on organic growth is a strategy that allows us to generate stable funding sources without the non-amortizing goodwill assets and core deposit intangibles that strategic acquisitions might add to our balance sheet. We believe that a strong core deposit base is extremely valuable and desirable in allowing our bank to grow despite continued interest rate competition from bank and non-bank sources, and serves us well when alternative funding sources become more expensive. As such, we also believe that our significant core deposit franchise in East Texas provides a stable funding source for meaningful loan growth in existing and new markets. In addition, we strive to build comprehensive banking relationships with new borrowers through deposit and treasury management products and services. |
• | Pursue Strategic Acquisitions. We intend to continue to grow through strategic acquisitions within our current markets and in other complementary markets, however the culture, economics and location of potential new acquisitions is critical in our decision making. We seek acquisitions that provide meaningful financial benefits through long-term organic growth opportunities and expense reductions, while maintaining our current risk profile. We believe that many smaller financial institutions will consider us an ideal long-term |
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partner due to our community banking philosophy, commitment to employee stock ownership and our culture of teamwork. |
• | Establish De Novo Banking Locations. We intend to open de novo banking locations in our existing and other attractive markets in Texas to further diversify our banking location network. In 2020, we opened a second de novo banking location in Austin, Texas and plan to open a third de novo location just outside of Austin in Georgetown, Texas in 2021. |
• | Increase Earnings Streams. We seek to maintain asset quality in a manner that allows us to maintain our current earnings streams, while also providing additional services such as robust treasury management, trust and wealth management and Small Business Association guaranteed loans to our customers in order to augment and diversify our revenue sources. For the year ended December 31, 2020, noninterest income represented approximately $23.0 million, or 20.4%, of our total revenue of $113.0 million (defined as net interest income plus noninterest income). |
The charts below illustrate our meaningful asset, loan, deposit and net income growth for the last five years:
(1) | Total loans, including loans held for sale. |
(2) | Core earnings defined as pre-tax, pre-provision, pre-PPP related net earnings. See our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures.” |
Although we are devoting substantial resources in furtherance of our expansion strategy, there are no assurances that we will be able to further implement our expansion strategy or that any of the components of our expansion strategy will be successful.
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We believe the following competitive strengths support our growth and expansion strategy:
• | Experienced Executive Management Team. The Bank has a seasoned and experienced executive management team with more than 300 years of experience in financial services businesses. Our executive management team has successfully managed profitable organic growth, executed acquisitions, developed a strong credit culture and implemented a relationship-based approach to commercial and consumer banking. In addition, our executive management team has extensive knowledge of the bank regulatory landscape, significant experience navigating interest rate and credit cycles and a long history of working together. |
• | Employee Ownership Mentality. As of December 31, 2020, our Company only directors, our executive officers and our employee stock ownership plan, or KSOP, as a group, beneficially owned approximately 26.9% of our outstanding shares of common stock. Our KSOP owned 11.2% of our outstanding shares. Many of our employees’ interests in the KSOP represent material portions of their net worth, particularly our long-tenured employees. We believe that the KSOP’s material ownership position promotes an owner-operator mentality among our employees, from senior officers to entry-level employees, which we believe enhances our employees’ dedication to our organization and the execution of our strategy. |
• | Proven Successful Execution of Growth Strategies. We have developed a strategic growth plan that allows the Company to quickly identify and efficiently execute corporate transactions that we believe enhance our geographic footprint and enterprise value. Since 2011, we have successfully integrated ten acquired locations into our Company through what we believe is an effective combination of comprehensive integration planning, extensive management experience with expansion, and a welcoming and flexible culture of employee ownership. In that same time period, we also established nine de novo locations outside of our historical East Texas market, achieving our objectives for organic growth within our anticipated time periods and successfully integrating new local management teams and employees into our Company. Accordingly, we have a proven track record of executing value-added acquisitions and achieving consistent, meaningful organic growth. |
• | Scalable Platform. Utilizing the significant prior experience of our management team and employees, we believe that we have built a strong and scalable operational platform, including technology and banking processes and infrastructure, capable of supporting future organic growth and acquisitions when the right opportunities arise. We maintain operational systems and staffing that we believe are stronger than necessarily required for a financial institution of our size in order to successfully execute integrations when needed and accommodate future growth without a commensurate need for expansion of our back office capabilities. We believe our platform allows us to focus on growing the revenue-generating divisions of our business while maintaining our operational efficiencies, resulting in improved profitability. |
• | Disciplined Credit Culture and Robust Risk Management Systems. We seek to prudently mitigate and manage our risks through a disciplined, enterprise-wide approach to risk management, particularly credit, compliance, operational and interest rate risk. All of the Bank’s executive officers serve on the Bank’s Enterprise Risk Management Committee. We endeavor to maintain asset quality through an emphasis on local market knowledge, long-term customer relationships, consistent and thorough underwriting for all loans and a conservative credit culture. |
• | Brand Strength and Reputation. We believe our brand recognition, including the Guaranty name and our iconic “G” logo, which is prominently displayed in all of our advertising and marketing materials and has been trademarked to preserve its integrity, is an important element of our business model and a key driver of our future growth. We believe our reputation for providing personal and dependable service and active community involvement is well established in our traditional East Texas market, and we are continuously striving to replicate that brand awareness and reputation in our newer markets of the Dallas/Fort Worth metroplex, Houston metroplex and Central Texas through a high level of community involvement, deliberate and effective digital marketing and the targeted hiring of employees with strong relationships and reputations within these markets. |
• | Stable and Growing Core Deposit Base. We believe our traditional East Texas market provides a historically stable source of core deposits that serves as a great source of funding when there is volatility in interest rates and an increasing desire for core deposits make them more difficult and more expensive to attract, especially in competitive markets. As we enter new markets, we believe that our stable core deposit base enhances our ability to pursue loans in large, high growth markets and to fund other revenue sources such as our warehouse lending division. |
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Our Banking Services
Lending Activities.
We offer a variety of loans, including commercial lines of credit, working capital loans, commercial real estate-backed loans (including loans secured by owner occupied commercial properties), term loans, equipment financing, acquisition, expansion and development loans, borrowing base loans, real estate construction loans, homebuilder loans, letters of credit and other loan products to small- and medium-sized businesses, real estate developers, mortgage lenders, manufacturing and industrial companies and other businesses. We also offer various consumer loans to individuals and professionals including residential real estate loans, home equity loans, installment loans, unsecured and secured personal lines of credit, and standby letters of credit. Lending activities originate from the efforts of our bankers, with an emphasis on lending to individuals, professionals, small- to medium-sized businesses and commercial companies located in our market areas. Although all lending involves a degree of risk, we believe that commercial business loans and commercial real estate loans present greater risks than other types of loans in our portfolio. We work to mitigate these risks through conservative underwriting policies and consistent monitoring of credit quality indicators.We adhere to what we believe are disciplined underwriting standards, but also remain cognizant of the need to serve the credit needs of customers in our primary market areas by offering flexible loan solutions in a responsive and timely manner. We maintain asset quality through an emphasis on local market knowledge, long-term customer relationships, consistent and thorough underwriting for all loans and a conservative credit culture. We also seek to maintain a broadly diversified loan portfolio across customer, product and industry types. Our lending policies do not provide for any loans that are highly speculative, subprime, or that have high loan-to-value ratios. These components, together with active credit management, are the foundation of our credit culture, which we believe is critical to enhancing the long-term value of our organization to our customers, employees, shareholders and communities.
We have a service-driven, relationship-based, business-focused credit culture, rather than a price-driven, transaction-based culture. Substantially all of our loans are made to borrowers located or operating in our primary
Our credit approval policies provide for various levels of officer and senior management lending authority for new credits and renewals, which are based on position, capability and experience. Loans in excess of an individual officer’s lending limit may be approved by two or more executive officers, with stacking authority, combining their individual lending limits, up to a current maximum of $2.5$5.0 million. Loans presenting aggregate lending exposure in excess of $2.5$5.0 million are subject to approval of the Bank’s Directors’ Loan Committee.Committee, although all loans with aggregate exposure over $1.0 million are provided for review. These limits are reviewed periodically by the Bank’s board of directors. We believe that our credit approval process provides for thorough underwriting and efficient decision making.
Credit risk management involves a partnership between our loan officers and our credit approval, credit administration and collections personnel. We conduct monthly loan meetings, attended by substantially all of our loan officers, related loan production staff and credit administration staff at which asset quality and delinquencies are reviewed. Our evaluation and compensation program for our loan officers includes significant goals, such as the percentages of past due loans and charge-offs to total loans in the officer’s portfolio, that we believe motivate the loan officers to focus on the origination and maintenance of high quality credits consistent with our strategic focus on asset quality.
Deposit Activities.
Our deposits serve as the primary funding source for lending, investing and other general banking purposes. We provide a full range of deposit products and services, including a variety of checking and savings accounts, certificates of deposit, money market accounts, debit cards, remote deposit capture, online banking, mobile banking, e-Statements, bank-by-mail and direct deposit services. We also offer business accounts and cash management services, including business checking and savings accounts and treasury management services. We solicit deposits through our relationship-driven team of dedicated and accessible bankers and through community focused marketing. We also seek to cross-sell deposit products at loan origination.Given the diverse nature of our banking location network and our relationship-driven approach to our customers, we believe our deposit base is comparatively less sensitive to interest rate variations than our competitors. Nevertheless, we attempt to competitively price our deposit products to promote core deposit growth. We believe that our loan pricing encourages deposits from our loan customers.
Guaranty Bank & Trust Wealth Management Group.
We deliver a comprehensive suite of trust services through Guaranty Bank & Trust Wealth Management Group, a division of our Bank. We provide traditional trustee, custodial and escrow services for institutional and individual accounts, including corporate escrow accounts, serving as custodian for5
self-directed individual retirement accounts and other retirement accounts. In addition, we offer clients comprehensive investment management solutions whereby we manage all or a portion of a client’s investment portfolio on a discretionary basis. Finally, we provide retirement plan services, such as 401(k) programs, through a national vendor.
Other Products and Services.
We offer banking products and services that are attractively priced with a focus on customer convenience and accessibility. We offer a full suite of online banking services including access to account balances, online transfers, online bill payment and electronic delivery of customer statements, as well as ATMs, and banking by telephone, mail and personal appointment. We also offer debit cards, night depository, direct deposit, cashier’s checks, and letters of credit, as well as treasury management services, including wire transfer services, positive pay, remote deposit capture and automated clearinghouse services.Investments
We manage our investment portfolio primarily for liquidity purposes, with a secondary focus on returns. We separate our portfolio into two categories: (1) short-term investments with maturities less than one year, including federal funds sold; and (2) investments with maturities exceeding one year (the current effective duration is approximately 5.32.92 years), all of which are classified as either available-for-sale or held-to-maturityavailable for sale and can be used for pledging on public deposits, selling under repurchase agreements and meeting unforeseen liquidity needs. We regularly evaluate the composition of this category as changes occur with respect to the interest rate yield curve. Although we may sell investment securities from time to time to take advantage of changes in interest rate spreads, it is our policy not to sell investment securities unless we can reinvest the proceeds at a similar or higher spread, so as not to take gains to the detriment of future income.
Our Markets
We consider our current market regions to be East Texas, Central Texas, and the Dallas/Fort Worth metroplex.MSA and the Houston MSA. We serve these communities from our corporate headquarters in Addison, Texas, our operational headquarters in Mount Pleasant, Texas and through a network of 1715 banking locations within East Texas, fourfive banking locations in Central Texas, and seven banking locations in the Dallas/Fort Worth metroplex and four banking locations in the Houston metroplex. As part of our strategic plan, we intend to further diversify our markets through entry into other large metropolitan markets in Texas.
Competition
The banking and financial services industry is highly competitive, and we compete with a wide range of financial institutions within our markets, including local, regional and national commercial banks and credit unions. We also compete with mortgage companies, brokerage firms, consumer finance companies, mutual funds, securities firms, insurance companies, third-party payment processors, fintech companies and other financial intermediaries for certain of our products and services. Some of our competitors are not subject to the regulatory restrictions and level of regulatory supervision applicable to us.
Interest rates on loans and deposits, as well as prices on fee-based services, are typically significant competitive factors within banking and financial services industry. Many of our competitors are much larger financial institutions that have greater financial resources than we do and compete aggressively for market share. These competitors attempt to gain market share through their financial product mix, pricing strategies and banking center locations. Other important competitive factors in our industry and markets include office locations and hours, quality of customer service, community reputation, continuity of personnel and services, capacity and willingness to extend credit, and ability to offer sophisticated banking products and services. While we seek to remain competitive with respect to fees charged, interest rates and pricing, we believe that our broad and sophisticated commercial banking product suite, our high-quality customer service culture, our positive reputation and long-standing community relationships will enable us to compete successfully within our markets and enhance our ability to attract and retain customers.
Human Capital Resources
As of December 31, 2017,2020, we employed 407467 full-time equivalent persons. We provide extensive training to our employees in an effort to ensure that our customers receive superior customer service. None of our employees are represented by any collective bargaining unit or are parties to a collective bargaining agreement. We consider our relations with our employees to be good.
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Our Corporate Information
Our principal executive offices are located at 201 South Jefferson Avenue, Mount Pleasant,16475 Dallas Parkway, Suite 600, Addison, Texas 75455,75001, and our telephone number is (903)(888) 572-9881. Our website is www.gnty.com. We make available at this address, free of charge, our annual report on Form 10-K, our annual report to shareholders, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, or the Exchange Act, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission, or SEC. These documents are also available on the SEC's website at www.sec.gov. The information contained on or accessible from our website does not constitute part of this Annual Report on Form 10-K and is not incorporated by reference herein.
Supervision and Regulation
The U.S. banking industry is highly regulated under federal and state law. Consequently, our growth and earnings performance will be affected not only by management decisions and general and local economic conditions, but also by the statutes administered by, and the regulations and policies of, various governmental regulatory authorities. These authorities include the Board of Governors of the Federal Reserve (“Federal Reserve”), Federal Deposit Insurance Corporation ("FDIC"), Consumer Financial Protection Bureau ("CFPB"), Office of the Comptroller of the Currency ("OCC), Internal Revenue Service ("IRS") and state taxing authorities. The effect of these statutes, regulations and policies, and any changes to such statutes, regulations and policies, can be significant and cannot be predicted.
The material statutory and regulatory requirements that are applicable to the Company and its subsidiaries are summarized below. The description below is not intended to summarize all laws and regulations applicable to the Company and its subsidiaries, and is based upon the statutes, regulations, policies, interpretive letters and other written guidance that are in effect as of the date of this Annual Report on Form 10-K.
Guaranty Bancshares, Inc.
As a bank holding company, we are subject to regulation under the Bank Holding Company Act of 1956, or the BHC Act, and to supervision, examination and enforcement by the Federal Reserve. The BHC Act and other federal laws subject bank holding companies to particular restrictions on the types of activities in which they may engage, and to a range of supervisory requirements and activities, including regulatory enforcement actions for violations of laws and regulations. The Federal Reserve’s jurisdiction also extends to any company that we directly or indirectly control, such as any nonbank subsidiaries and other companies in which we own a controlling investment.
Financial Services Industry Reform.
In addition, the Dodd-Frank Act addressesaddressed many investor protection, corporate governance and executive compensation matters that will affectaffecting publicly-traded companies. However, under the Jumpstart our Business Startups Act of 2012, or JOBS Act, there areprovided certain exceptions to these requirements for so long as a publicly-traded company qualifies as an emerging growth company.
Revised Rules on Regulatory Capital.
Regulatory capital rules pursuant to the Basel III requirements, released in July 2013 and effective January 1, 2015,The capital rules also require banks to maintain a CET1 capital ratio of 6.5%, a total Tier 1 capital ratio of 8.0%, a total capital ratio of 10.0% and a leverage ratio of 5.0% to be deemed “well capitalized” for purposes of certain rules and prompt corrective action requirements. The risk-based ratios include a “capital conservation buffer” of 2.5% above its minimum risk-based capital requirements that must be composed of common equity Tier 1 capital. This buffer will help to
7
ensure that banking organizations conserve capital when it is most needed, allowing them to better weather periods of economic stress. The buffer is measured relative to risk-weighted assets. The capital conservation buffer began phasing in in January 2016 at 0.625% of risk-weighted assets and will increase by that amount each year until fully implemented in January 2019. Although these new capital ratios do not become fully phased in until 2019, the banking regulators will generally expect bank holding companies and banks to meet these requirements well ahead of that date. An institution would be subject to limitations on certain activities including payment of dividends, share repurchases and discretionary bonuses to executive officers if its capital level is below the buffered ratio.
The EGRRCPA directed the federal banking agencies to develop a new, optional capital ratio for use by eligible community banks. Effective January 1, 2020, certain banks and their holding companies that satisfy the definition of a qualifying community banking organization, or QCBO, have the option to elect out of complying with the Basel III Capital Rules and to instead comply with the community bank leverage ratio, or CBLR, of 9%. On April 6, 2020, federal banking regulators issued two interim final rules also attempt to improve the quality of capital by implementingthat make changes to the definitionCBLR framework. The first interim rules temporarily reduced the threshold to qualify as well capitalized from 9% to 8%, subject to the bank meeting certain conditions. It also establishes a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall below the 8% CBLR requirement, so long as the banking organization maintains a leverage ratio of capital. Among7% or greater. The second interim final rule provides a transition from the most important changes are stricter eligibility criteriatemporary 8% CBLR requirement to a 9% CBLR requirement. It establishes a minimum CBLR of 8% for regulatorythe second through fourth quarters of 2020, 8.5% for 2021, and 9% thereafter, and maintains a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall no more than 100 basis points below the applicable CBLR requirement.
A QCBO is defined as a bank, a savings association, a bank holding company or a savings and loan holding company with:
• | total consolidated assets of less than $10 billion; |
• | total off-balance sheet exposures (excluding derivatives other than credit derivatives and unconditionally cancelable commitments) of 25% or less of total consolidated assets; |
• | total trading assets and trading liabilities of 5% or less of total consolidated assets; |
• | MSAs of 25% or less of CBLR tangible equity; and |
• | temporary difference DTAs of 25% or less of CBLR tangible equity. |
A QCBO may elect out of complying with the Basel III Capital Rules if, at the time of the election, the QCBO has a CBLR above 9%. The numerator of the CBLR is referred to as ‘‘CBLR tangible equity’’ and is calculated as the QCBO’s total capital instruments that would disallowas reported in compliance with Call Report and FR Y-9C instructions, or Reporting Instructions (prior to including non-controlling interests in consolidated subsidiaries) less:
• | Accumulated other comprehensive income (referred to in the industry as AOCI); |
• | Intangible assets, calculated in accordance with Reporting Instructions, other than mortgage servicing assets; and |
• | Deferred tax assets that arise from net operating loss and tax credit carry forwards net of any related valuations allowances. |
The denominator of the inclusion of certain instruments, such as trust preferred securities (other than grandfathered trust preferred securities such as those issued byCBLR is the Company),QCBO’s average assets, calculated in Tier 1 capital going forwardaccordance with Reporting Instructions and new constraints on the inclusion of minority interests, mortgage-servicingless intangible assets and deferred tax assets and certain investments in the capital of unconsolidated financial institutions. In addition, the new rule requires that most regulatory capital deductions be madededucted from CET1 capital.
Imposition of Liability for Undercapitalized Subsidiaries.
Bank regulators are required to take prompt corrective action to resolve problems associated with insured depository institutions whose capital declines below certain levels. In the event an institution becomes undercapitalized, it must submit a capital restoration plan. The capital restoration plan will not be accepted by the regulators unless each company having control of the undercapitalized institution guarantees the subsidiary’s compliance with the capital restoration plan up to a certain specified amount. Any such guarantee from a depository institution’s holding company is entitled to a priority of payment in bankruptcy.The aggregate liability of the holding company of an undercapitalized bank is limited to the lesser of 5.0% of the institution’s assets at the time it became undercapitalized or the amount necessary to cause the institution to be adequately capitalized. The bank regulators have greater power in situations where an institution becomes significantly or critically undercapitalized or fails to submit a capital restoration plan. For example, a bank holding company controlling such an institution can be required to obtain prior Federal Reserve approval of proposed dividends, or might be required to consent to a consolidation or to divest the troubled institution or other affiliates.
Acquisitions by Bank Holding Companies.
The BHC Act requires every bank holding company to obtain the prior approval of the Federal Reserve before it acquires all or substantially all of the assets of any bank, or ownership or control8
of any voting shares of any bank or bank holding company if after such acquisition it would own or control, directly or indirectly, more than 5.0% of the voting shares of such bank or bank holding company. In approving bank or bank holding company acquisitions by bank holding companies, the Federal Reserve is required to consider, among other things, the effect of the acquisition on competition, the financial condition, managerial resources and future prospects of the bank holding company and the banks concerned, the convenience and needs of the communities to be served (including the record of performance under the CRA), the effectiveness of the applicant in combating money laundering activities and the extent to which the proposed acquisition would result in greater or more concentrated risks to the stability of the U.S. banking or financial system. Our ability to make future acquisitions will depend on our ability to obtain approval for such acquisitions from the Federal Reserve. The Federal Reserve could deny our application based on the above criteria or other considerations. For example, we could be required to sell banking centers as a condition to receiving regulatory approval, which condition may not be acceptable to us or, if acceptable to us, may reduce the benefit of a proposed acquisition.
Control Acquisitions.
Federal and state laws, including the BHC Act and the Change in Bank Control Act, or CBCA, impose additional prior notice or approval requirements and ongoing regulatory requirements on any investor that seeks to acquire direct or indirect “control” of an FDIC-insured depository institution or bank holding company. Whether an investor “controls” a depository institution is based on all of the facts and circumstances surrounding the investment. As a general matter, an investor is deemed to control a depository institution or other company if the investor owns or controls 25.0% or more of any class of voting securities. Subject to rebuttal, an investor is presumed to control a depository institution or other company if the investor owns or controls 10.0% or more of any class of voting securities and either the depository institution or company is a public company or no other person will hold a greater percentage of that class of voting securities after the acquisition. If an investor’s ownership of our voting securities were to exceed certain thresholds, the investor could be deemed to “control” us for regulatory purposes, which could subject such investor to regulatory filings or other regulatory consequences. The requirements of theRegulatory Restrictions on Dividends; Source of Strength.
Under Federal Reserve policy, bank holding companies have historically been required to act as a source of financial and managerial strength to each of their banking subsidiaries, and the Dodd-Frank Act codified this policy as a statutory requirement. Under this requirement, we arethe Company is expected to commit resources to support Guaranty Bank & Trust, including at times when we may not be in a financial position to provide such resources. Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary banks. As discussed below, a bank holding company, in certain circumstances, could be required to guarantee the capital restoration plan of an undercapitalized banking subsidiary. If the capital of Guaranty Bank & Trust were to become impaired, the Federal Reserve could assess usthe Company for the deficiency. If wethe Company failed to pay the assessment within three months, the Federal Reserve could order the sale of ourthe Company’s stock in Guaranty Bank & Trust to cover the deficiency.
In the event of a bank holding company’s bankruptcy under Chapter 11 of the U.S. Bankruptcy Code, the trustee will be deemed to have assumed and will be required to cure immediately any deficit under any commitment by the debtor holding company to any of the federal banking agencies to maintain the capital of an insured depository institution, and any claim for breach of such obligation will generally have priority over most other unsecured claims.
Scope of Permissible Activities.
Under the BHC Act,9
closely related to banking or managing and controlling banks as to be a proper incident thereto. These activities include, among others, operating a mortgage, finance, credit card or factoring company; performing certain data processing operations; providing investment and financial advice; acting as an insurance agent for certain types of credit-related insurance; leasing personal property on a full-payout, nonoperating basis; and providing certain stock brokerage and investment advisory services. In approving acquisitions or the addition of activities, the Federal Reserve considers, among other things, whether the acquisition or the additional activities can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh such possible adverse effects as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices.
Notwithstanding the foregoing, the Gramm-Leach-Bliley Act, also known as the Financial Services Modernization Act of 1999, effective March 11, 2000, or the GLB Act, amended the BHC Act and eliminated the barriers to affiliations among banks, securities firms, insurance companies and other financial service providers. The GLB Act permitspermitted bank holding companies to become financial holding companies and thereby affiliate with securities firms and insurance companies and engage in other activities that are financial in nature. The GLB Act defines “financial in nature” to include, among other things, securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking activities; and activities that the Federal Reserve has determined to be closely related to banking. No regulatory approval will be required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve. We currently have no plans to make a financial holding company election, although we may make a financial holding company election in the future if we desire to engage in any lines of business that are impermissible for bank holding companies but permissible for financial holding companies.
Safe and Sound Banking Practices.
Bank holding companies are not permitted to engage in unsafe and unsound banking practices. The Federal Reserve’s Regulation Y, for example, generally requires a bank holding company to provide the Federal Reserve with prior notice of any redemption or repurchase of its own equity securities, if the consideration to be paid, together with the consideration paid for any repurchases or redemptions in the preceding year, is equal to 10.0% or more of the bank holding company’s consolidated net worth. The Federal Reserve may oppose the transaction if it believes that the transaction would constitute an unsafe or unsound practice or would violateThe Federal Reserve has broad authority to prohibit activities of bank holding companies and their nonbanking subsidiaries which represent unsafe and unsound banking practices, result in breaches of fiduciary duty or which constitute violations of laws or regulations, and can assess civil money penalties or impose enforcement action for such activities. The penalties can be as high as $1,000,000 for each day the activity continues.
Anti-tying Restrictions.
Bank holding companies and their affiliates are prohibited from tying the provision of certain services, such as extensions of credit, to other nonbanking services offered by a bank holding company or its affiliates.Guaranty Bank & Trust, N.A.
The Bank is subject to various requirements and restrictions under the laws of the United States, and to regulation, supervision and examination by the OCC. The Bank is also an insured depository institution and, therefore, subject to regulation by the FDIC, although the OCC is the Bank’s primary federal regulator. The OCC and the FDIC have the power to enforce compliance with applicable banking statutes and regulations. Such requirements and restrictions include requirements to maintain reserves against deposits, restrictions on the nature and amount of loans that may be made and the interest that may be charged thereon and restrictions relating to investments and other activities of the Bank.
Capital Adequacy Requirements.
The OCC monitors the capital adequacy of the Bank by using a combination of risk-based guidelines and leverage ratios. The OCC considers the Bank’s capital levels when taking action on various types of applications and when conducting supervisory activities related to the safety and soundness of the Bank and the banking system. Under the revised capital rules which became effective on January 1, 2015, national banks are required to maintain four minimum capital standards: (1) a Tier 1 capital to adjusted total assets ratio, or “leverage capital ratio,” of at least 4.0%, (2) a Tier 1 capital to risk-weighted assets ratio, or “Tier 1 risk-based capital ratio,” of at least 6.0%, (3) a total risk-based capital (Tier 1 plus Tier 2) to risk-weighted assets ratio, or “total risk-based capital ratio,” of at least 8.0%, and (4) a CET1 capital ratio of 4.5%. In addition, the OCC’s prompt corrective action standards discussed below, in effect,10
increase the minimum regulatory capital ratios for banking organizations. These capital requirements are minimum requirements. Higher capital levels may be required if warranted by the particular circumstances or risk profiles of individual institutions, or if required by the banking regulators due to the economic conditions impacting our market. For example, OCC regulations provide that higher capital may be required to take adequate account of, among other things, interest rate risk and the risks posed by concentrations of credit, nontraditional activities or securities trading activities.
Corrective Measures for Capital Deficiencies.
The federal banking regulators are required by the Federal Deposit Insurance Act, or FDI Act, to take “prompt corrective action” with respect to capital-deficient institutions that are FDIC-insured. Agency regulations define, for each capital category, the levels at which institutions are “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” Under the revised capital rules, which became effective on January 1, 2015, a “well capitalized” bank has a total risk-based capital ratio of 10.0% or higher, a Tier 1 risk-based capital ratio of 8.0% or higher, a leverage ratio of 5.0% or higher, aIn addition to requiring undercapitalized institutions to submit a capital restoration plan, agency regulations contain broad restrictions on certain activities of undercapitalized institutions including asset growth, acquisitions, branch establishment and expansion into new lines of business. With certain exceptions, an insured depository institution is prohibited from making capital distributions, including dividends, and is prohibited from paying management fees to control persons if the institution would be undercapitalized after any such distribution or payment.
As a national bank’s capital decreases, the OCC’s enforcement powers become more severe. A significantly undercapitalized national bank is subject to mandated capital raising activities, restrictions on interest rates paid and
Banks with risk-based capital and leverage ratios below the required minimums may also be subject to certain administrative actions, including the termination of deposit insurance upon notice and hearing, or a temporary suspension of insurance without a hearing in the event the institution has no tangible capital.
Branching.
National banks are required by the National Bank Act to adhere to branching laws applicable to state banks in the states in which they are located. Under the Dodd-Frank Act, de novo interstate branching by national banks is permitted if, under the laws of the state where the branch is to be located, a state bank chartered in that state would have been permitted to establish a branch. Under current Texas law, banks are permitted to establish branch offices throughout Texas with prior regulatory approval. In addition, with prior regulatory approval, banks are permitted to acquire branches of existing banks located in Texas. Banks located in Texas may also branch across state lines by merging with banks or by purchasing a branch of another bank in other states if allowed by the applicable states’ laws.Restrictions on Transactions with Affiliates and Insiders.
Transactions between the Bank and its nonbanking subsidiaries and/or affiliates, includingIn general, Section 23A of the Federal Reserve Act imposes limits on the amount of such transactions, and also requires certain levels of collateral for loans to affiliated parties. It also limits the amount of advances to third parties which are collateralized by the securities or obligations of the Company or its subsidiaries. Covered transactions with any single affiliate may not exceed 10.0% of the capital stock and surplus of the Bank, and covered transactions with all affiliates may not exceed, in the aggregate, 20.0% of the Bank’s capital and surplus. For a bank, capital stock and surplus refers to the bank’s Tier 1 and Tier 2 capital, as calculated under the risk-based capital guidelines, plus the balance of the allowance for credit losses excluded from Tier 2 capital. The Bank’s transactions with all of its affiliates in the aggregate are limited to 20.0% of the foregoing capital. “Covered transactions” are defined by statute to include a loan or extension of credit to an affiliate, as well as a purchase of securities issued by an affiliate, a purchase of assets (unless otherwise exempted by the Federal Reserve) from the affiliate, the acceptance of securities issued by the affiliate as collateral for a loan, and the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate. In addition, in connection with covered transactions that are extensions of credit, the Bank may be required to hold collateral to provide added security to the Bank, and the types of permissible collateral may be limited. The Dodd-Frank Act generally enhances the restrictions on transactions with affiliates, including an expansion of what types of transactions are covered transactions to include
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credit exposures related to derivatives, repurchase agreement and securities lending arrangements and an increase in the amount of time for which collateral requirements regarding covered transactions must be satisfied.
Affiliate transactions are also subject to Section 23B of the Federal Reserve Act which generally requires that certain transactions between the Bank and its affiliates be on terms substantially the same, or at least as favorable to the Bank, as those prevailing at the time for comparable transactions with or involving other nonaffiliated persons. The Federal Reserve has also issued Regulation W which codifies prior regulations under Sections 23A and 23B of the Federal Reserve Act and interpretive guidance with respect to affiliate transactions.
The restrictions on loans to directors, executive officers, principal shareholders and their related interests (collectively referred to herein as “insiders”) contained in Section 22(h) of the Federal Reserve Act and in Regulation O promulgated by the Federal Reserve apply to all insured institutions and their subsidiaries and bank holding companies. These restrictions include limits on loans to one borrower and conditions that must be met before such a loan can be made. There is also an aggregate limitation on all loans to insiders and their related interests. Generally, the aggregate of these loans cannot exceed the institution’s total unimpaired capital and surplus, although a bank’s regulators may determine that a lesser amount is appropriate. Loans to senior executive officers of a bank are even further restricted. Insiders are subject to enforcement actions for accepting loans in violation of applicable restrictions.
Restrictions on Distribution of Bank Dividends and Assets.
Dividends paid by the Bank have provided a substantial part ofIn addition, under the Federal Deposit Insurance Corporation Improvement Act of 1991, or FDICIA, the Bank may not pay any dividend if it is undercapitalized or the payment of the dividend would cause it to become undercapitalized. The OCC may further restrict the payment of dividends by requiring that the Bank maintain a higher level of capital than otherwise required for it to be adequately capitalized for regulatory purposes. Moreover, if, in the opinion of the OCC, the Bank is engaged in an unsound practice (which could include the payment of dividends), it may require, generally after notice and hearing, that the Bank cease such practice. The OCC has indicated that paying dividends that deplete a depository institution’s capital base to an inadequate level would be an unsafe banking practice. The OCC has also issued policy statements providing that insured depository institutions generally should pay dividends only out of current operating earnings.
Further, in the event of a liquidation or other resolution of an insured depository institution, the claims of depositors and other general or subordinated creditors are entitled to a priority of payment over the claims of holders of any obligation of the institution to its shareholders, including any depository institution holding company (such as us) or any shareholder or creditor thereof.
Incentive Compensation Guidance.
The federal banking agencies have issued comprehensive guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of those organizations by encouraging excessive risk-taking. The incentive compensation guidance sets expectations for banking organizations concerning their incentive compensation arrangements and related risk-management, control and governance processes. The incentive compensation guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon three primary principles: (1) balanced risk-taking incentives, (2) compatibility with effective controls and risk management and (3) strong corporate governance. Any deficiencies in compensation practices that are identified may be incorporated into the organization’s supervisory ratings, which can affect its ability to make acquisitions or take other actions. In addition, under the incentive compensation guidance, a banking organization’s federal supervisor may initiate enforcement action if the organization’s incentive compensation arrangements pose a risk to the safety and soundness of the organization. Further, a provision of the Basel III capital standards described above would limit discretionary bonus payments to bank executives if the institution’s regulatory capital ratios fail to exceed certain thresholds. A number of federal regulatory agencies proposed rules that would require enhanced disclosure of incentive-based compensation arrangements initially in April 2011, and again in April and May 2016, but the rules have not been finalized and would mostly apply to banking organizations with over $50 billion in total assets. The scope and content of the U.S. banking regulators’ policies on executive compensation are continuing to develop and are likely to continue evolving in the near future.12
Audit Reports.
For insured institutions with total assets of $1.0 billion or more, requirements include financial statements prepared in accordance with GAAP, management’s certifications signed by our and the Bank’s chief executive officer and chief accounting or financial officer concerning management’s responsibility for the financial statements, and an attestation by the auditors regarding the Bank’s internal controls must be submitted. For institutions with total assets of more than $3.0 billion, independent auditors may be required to review quarterly financial statements. FDICIA requires that the Bank have an independent audit committee, consisting of outside directorsDeposit Insurance Assessments.
The FDIC insures the deposits of federally insured banks up to prescribed statutory limits for each depositor through the Deposit Insurance Fund and safeguards the safety and soundness of the banking and thrift industries. The maximum amount of deposit insurance for banks and savings institutions is $250,000 per depositor. The amount of FDIC assessments paid by each insured depository institution is based on its relative risk of default as measured by regulatory capital ratios and other supervisory factors and is calculated based on an institution’s average consolidated total assets minus average tangible equity.We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance. At least semi-annually, the FDIC will update its loss and income projections for the Deposit Insurance Fund and, if needed, will increase or decrease assessment rates, following notice-and-comment rulemaking, if required. If there are additional bank or financial institution failures or if the FDIC otherwise determines to increase assessment rates, the Bank may be required to pay higher FDIC insurance premiums. Any future increases in FDIC insurance premiums may have a material and adverse effect on our earnings.
Financial Modernization.
Under the GLB Act, banks may establish financial subsidiaries and engage, subject to limitations on investment, in activities that are financial in nature, other than insurance underwriting as principal, insurance company portfolio investment, real estate development, real estate investment, annuity issuance and merchant banking activities. To do so, a bank must be well capitalized, well managed and have a CRA rating from its primary federal regulator of satisfactory or better. Subsidiary banks of financial holding companies or banks with financial subsidiaries must remain well capitalized and well managed in order to continue to engage in activities that are financial in nature without regulatory actions or restrictions. Such actions or restrictions could include divestiture of the “financial in nature” subsidiary or subsidiaries. In addition, a financial holding company or a bank may not acquire a company that is engaged in activities that are financial in nature unless each of the subsidiary banks of the financial holding company or the bank has a CRA rating of satisfactory of better. Neither we nor the Bank maintains a financial subsidiary.Brokered Deposit Restrictions.
Insured depository institutions that are categorized as adequately capitalized institutions under the FDI Act and corresponding federal regulations cannot accept, renew or roll over brokered deposits, without receiving a waiver from the FDIC, and are subject to restrictions on the interest rates that can be paid on any deposits. The EGRRCPA exempted reciprocal deposits from the definition of brokered deposits. Insured depository institutions that are categorized as undercapitalized capitalized institutions under the FDI Act and corresponding federal regulations may not accept, renew, or roll over brokered deposits. The Bank is not currently subject to such restrictions.Concentrated Commercial Real Estate Lending Regulations.
The federal banking regulatory agencies have promulgated guidance governing financial institutions with concentrations in commercial real estate lending. The guidance provides that a bank has a concentration in commercial real estate lending if (1) total reported loans for acquisition, construction, land development, and other land represent 100.0% or more of total capital or (2) total reported loans secured by multifamily and nonfarm residential properties and loans for acquisition, construction, land development, and other land represent 300.0% or more of total capital and the bank’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months. Owner occupied loans are excluded from this second category. If a concentration is present, management must employ heightened risk management practices that address, among other things, Board and management oversight and strategic planning, portfolio management, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing, and maintenance of increased capital levels as needed to support the level of commercial real estate lending. We are currently operating with real estate loan portfolios within such percentage levels.Community Reinvestment Act.
The CRA and the regulations issued thereunder are intended to encourage banks to help meet the credit needs of their entire assessment area, including low and moderate income neighborhoods, consistent with the safe and sound operations of such banks. These regulations also provide for regulatory assessment of a bank’s record in meeting the needs of its assessment area when considering applications to establish branches, merger applications and applications to acquire the assets and assume the liabilities of another bank. The Financial Institution Reform Recovery and Enforcement Act, or FIRREA, requires federal banking agencies to make public a rating of a bank’s13
performance under the CRA. In the case of a bank holding company, the CRA performance record of the banks involved in the transaction are reviewed in connection with the filing of an application to acquire ownership or control of shares or assets of a bank or to merge with any other bank holding company. An unsatisfactory CRA record could substantially delay approval or result in denial of an application. The Bank received a “satisfactory” rating in its most recent CRA examination.
Consumer Laws and Regulations.
The Bank is subject to numerous laws and regulations intended to protect consumers in transactions with the Bank. These laws include, among others, laws regarding unfair, deceptive and abusive acts and practices, usury laws, and other federal consumer protection statutes. These federal laws include the Electronic Fund Transfer Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Real Estate Procedures Act of 1974, the S.A.F.E. Mortgage Licensing Act of 2008, the Truth in Lending Act and the Truth in Savings Act, among others. Many states and local jurisdictions have consumer protection laws analogous, and in addition, to those enacted under federal law. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits, making loans and conducting other types of transactions. Failure to comply with these laws and regulationsIn addition, the Dodd-Frank Act created the CFPB. The CFPB has broad authority to regulate the offering and provision of consumer financial products. The CFPB officially came into being on July 21, 2011, and rulemaking authority for a range of consumer financial protection laws (such as the Truth in Lending Act, the Electronic Funds Transfer Act and the Real Estate Settlement Procedures Act, among others) transferred from the Federal Reserve and other federal regulators to the CFPB on that date. The Dodd-Frank Act gives the CFPB authority to supervise and examine depository institutions with more than $10.0 billion in assets for compliance with these federal consumer laws. The authority to supervise and examine depository institutions with $10.0 billion or less in assets for compliance with federal consumer laws remains largely with those institutions’ primary regulators. However, the CFPB may participate in examinations of these smaller institutions on a “sampling basis” and may refer potential enforcement actions against such institutions to their primary regulators. Accordingly, the CFPB may participate in examinations of the Bank, which currently has assets of less than $10.0 billion, and could supervise and examine our other direct or indirect subsidiaries that offer consumer financial products or services. The CFPB also has supervisory and examination authority over certain nonbank institutions that offer consumer financial products. The Dodd-Frank Act identifies a number of covered nonbank institutions, and also authorizes the CFPB to identify additional institutions that will be subject to its jurisdiction. In addition, the Dodd-Frank Act permits states to adopt consumer protection laws and regulations that are stricter than those regulations promulgated by the CFPB, and state attorneys general are permitted to enforce consumer protection rules adopted by the CFPB against certain institutions.
Mortgage Lending Rules.
The Dodd-Frank Act authorized the CFPB to establish certain minimum standards for the origination of residential mortgages, including a determination of the borrower’s ability to repay. Under the Dodd-Frank Act and related rules, financial institutions may not make a residential mortgage loan unless they make a “reasonable and good faith determination” that the consumer has a “reasonable ability” to repay the loan. The Dodd-Frank Act allows borrowers to raise certain defenses to foreclosure but provides a full or partial safe harbor from such defenses for loans that are “qualified mortgages.”Anti-Money Laundering and OFAC.
Under federal law, including the Bank Secrecy Act, or BSA, and the USA PATRIOT Act of 2001, certain financial institutions, such as the Bank, must maintain anti-money laundering programs that include established internal policies, procedures and controls; a designated BSA officer; an ongoing employee training program; and testing of the program by an independent audit function. Financial institutions are also prohibited from entering into specified financial transactions and account relationships and must meet enhanced standards for due diligence and customer identification especially in their dealings with foreign financial institutions and foreign customers. Financial institutions must take reasonable steps to conduct enhanced scrutiny of account relationships to guard against money laundering and to report any suspicious transactions, and law enforcement authorities have been granted increased access to financial information maintained by financial institutions. The Financial Crimes Enforcement Network, or FinCEN, issued final rules under the BSA in July 2016 that clarify and strengthen the due diligence requirements for banks with regard to their14
The Office of Foreign Assets Control, or OFAC, administers laws and Executive Orders that prohibit U.S. entities from engaging in transactions with certain prohibited parties. OFAC publishes lists of persons and organizations suspected of aiding, harboring or engaging in terrorist acts, known as Specially Designated Nationals and Blocked Persons. Generally, if a bank identifies a transaction, account or wire transfer relating to a person or entity on an OFAC list, it must freeze the account or block the transaction, file a suspicious activity report and notify the appropriate authorities.
Bank regulators routinely examine institutions for compliance with these obligations and they must consider an institution’s compliance in connection with the regulatory review of applications, including applications for bank
Privacy.
The federal banking regulators have adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a non-affiliated third party. These regulations affect how consumer information is transmitted through financial services companies and conveyed to outside vendors. In addition, consumers may also prevent disclosure of certain information among affiliated companies that is assembled or used to determine eligibility for a product or service, such as that shown on consumer credit reports and asset and income information from applications. Consumers also have the option to direct banks and other financial institutions not to share information about transactions and experiences with affiliated companies for the purpose of marketing products or services. In addition to applicable federal privacy regulations, the Bank is subject to certain state privacy laws.Federal Home Loan Bank System.
The FHLB system, of which the Bank is a member, consists of 12 regional FHLBs governed and regulated by the Federal Housing Finance Board, or FHFB. The FHLBs serve as reserve or credit facilities for member institutions within their assigned regions. The reserves are funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB system. The FHLBs make loans (i.e., advances) to members in accordance with policies and procedures established by the FHLB and the Boards of directors of each regional FHLB.As a system member, according to currently existing policies and procedures, the Bank is entitled to borrow from the Dallas FHLB provided it posts acceptable collateral. The Bank is also required to own a certain amount of capital stock in the FHLB. The Bank is in compliance with the stock ownership rules with respect to such advances, commitments and letters of credit and collateral requirements with respect to home mortgage loans and similar obligations. All loans, advances and other extensions of credit made by the FHLB to the Bank are secured by a portion of the respective mortgage loan portfolio, certain other investments and the capital stock of the FHLB held by the Bank.
Enforcement Powers.
The federal banking agencies, including our primary federal regulator, the OCC, have broad enforcement powers, including the power to terminate deposit insurance, impose substantial fines and other civil and criminal penalties, and appoint a conservator or receiver. Failure to comply with applicable laws, regulations and supervisory agreements, breaches of fiduciary duty or the maintenance of unsafe and unsound conditions or practices could subject the Company or the Bank and their subsidiaries, as well as their respective officers, directors, and other institution-affiliated parties, to administrative sanctions and potentially substantial civil money penalties. For example, the regulatory authorities may appoint the FDIC as conservator or receiver for a banking institution (or the FDIC may appoint itself, under certain circumstances) if any one or more of a number of circumstances exist, including, without limitation, the fact that the banking institution is undercapitalized and has no reasonable prospect of becoming adequately capitalized, fails to become adequately capitalized when required to do so, fails to submit a timely and acceptable capital restoration plan or materially fails to implement an accepted capital restoration plan.Effect of Governmental Monetary Policies
The commercial banking business is affected not only by general economic conditions but also by U.S. fiscal policy and the monetary policies of the Federal Reserve. Some of the instruments of monetary policy available to the Federal Reserve include changes in the discount rate on member bank borrowings, the fluctuating availability of borrowings at the “discount window,” open market operations, the imposition of and changes in reserve requirements against member banks’ deposits and certain borrowings by banks and their affiliates and assets of foreign branches. These policies influence to a significant extent the overall growth of bank loans, investments, and deposits and the interest rates charged on loans or paid on deposits. We cannot predict the nature of future fiscal and monetary policies or the effect of these policies on our operations and activities, financial condition, results of operations, growth plans or future prospects.
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Impact of Current Laws and Regulations
The cumulative effect of these laws and regulations, while providing certain benefits, adds significantly to the cost of our operations and thus have a negative impact on our profitability. There has also been a notable expansion in recent years of financial service providers that are not subject to the examination, oversight, and other rules and regulations to which we are subject. Those providers, because they are not so highly regulated, may have a competitive
Future Legislation and Regulatory Reform
In light of current economic conditions, regulators have increased their focus on the regulation of financial institutions. From time to time, various legislative and regulatory initiatives are introduced in Congress and state legislatures. New regulations and statutes are regularly proposed that contain wide-ranging proposals for altering the structures, regulations and competitive relationships of financial institutions operating in the United States. We cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which our business may be affected by any new regulation or statute. Future legislation, regulation and policies, and the effects of that legislation and regulation and those policies, may have a significant influence on our operations and activities, financial condition, results of operations, growth plans or future prospects and the overall growth and distribution of loans, investments and deposits. Such legislation, regulation and policies have had a significant effect on the operations and activities, financial condition, results of operations, growth plans and future prospects of commercial banks in the past and are expected to continue to do so.
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ITEM 1A. RISK FACTORS
Investing in our common stock involves a high degree of risk. Before you decide to invest in our common stock, you should carefully consider the risks described below, together with all other information included in this Annual Report on Form 10‑10‑K, including the disclosures in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included in “Item 8. Financial Statements and Supplementary Data.” The following is a summary of the significant risk factors that we believe could adversely affect our business, followed by more detailed descriptions of those risks. We believe the risks described below are the risks that are material to us as of the date of this Annual Report on Form 10‑10‑K. If any of the following risks actually occur, our business, financial condition, results of operations and growth prospects could be materially and adversely affected. In that case, you could experience a partial or complete loss of your investment.
Risks Related to Our Business
• | We may not be able to implement aspects of our expansion strategy, which may adversely affect our ability to maintain our historical earnings trends. |
• | We may not be able to overcome the integration and other risks associated with acquisitions, which could have an adverse effect on our ability to implement our business strategy. |
• | As a business operating in the financial services industry, adverse conditions in the general business or economic environment could adversely affect our business, financial condition and results of operations in the future. |
• | We may not be able to adequately measure and limit our credit risk, which could lead to unexpected losses. |
• | We are dependent on the use of data and modeling in our management’s decision-making, and faulty data or modeling approaches could negatively impact our decision-making ability or possibly subject us to regulatory scrutiny in the future. |
• | The small- to medium-sized businesses that we lend to may have fewer resources to weather adverse business developments, which may impair our borrowers’ ability to repay loans. |
• | Our commercial real estate and real estate construction loan portfolio exposes us to credit risks that may be greater than the risks related to other types of loans. |
• | Because a significant portion of our loan portfolio is comprised of real estate loans, negative changes in the economy affecting real estate values and liquidity could impair the value of collateral securing our real estate loans and result in loan and other losses. |
• | Appraisals and other valuation techniques we use in evaluating and monitoring loans secured by real property, other real estate owned and repossessed personal property may not accurately describe the net value of the asset. |
• | Our allowance for credit losses may prove to be insufficient to absorb potential losses in our loan portfolio. |
• | If we fail to maintain effective internal control over financial reporting, we may not be able to report our financial results accurately and timely, in which case our business may be harmed, investors may lose confidence in the accuracy and completeness of our financial reports, we could be subject to regulatory penalties and the price of our common stock may decline. |
• | We rely heavily on our executive management team and other key employees, and we could be adversely affected by the unexpected loss of their services. |
• | A lack of liquidity could impair our ability to fund operations and adversely impact our business, financial condition and results of operations. |
• | We may need to raise additional capital in the future, and such capital may not be available when needed or at all. |
• | We are subject to interest rate risk and fluctuations in interest rates may adversely affect our earnings. |
• | Our business is concentrated in, and largely dependent upon, the continued growth and welfare of our primary markets, and adverse economic conditions in these markets could negatively impact our operations and customers. |
• | We face strong competition from financial services companies and other companies that offer banking services. |
• | Our trust and wealth management division derives its revenue from noninterest income and is subject to operational, compliance, reputational, fiduciary and strategic risks that could adversely affect our business, financial condition and results of operations. |
• | Negative public opinion regarding our company or failure to maintain our reputation in the communities we serve could adversely affect our business and prevent us from growing our business. |
• | We could recognize losses on investment securities held in our securities portfolio, particularly if interest rates increase or economic and market conditions deteriorate. |
• | The accuracy of our financial statements and related disclosures could be affected if the judgments, assumptions or estimates used in our critical accounting policies are inaccurate. |
• | System failure or cyber security breaches of our network security could subject us to increased operating costs as well as litigation and other potential losses. |
• | We have a continuing need for technological change, and we may not have the resources to effectively implement new technology, or we may experience operational challenges when implementing new technology or technology needed to compete effectively with larger institutions may not be available to us on a cost effective basis. |
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• | We are subject to certain operational risks, including, but not limited to, customer, employee or third-party fraud and data processing system failures and errors. |
• | Our primary markets are susceptible to natural disasters and other catastrophes that could negatively impact the economies of our markets, our operations or our customers, any of which could have an adverse effect on us. |
• | If the goodwill that we have recorded or may record in connection with a business acquisition becomes impaired, it could require charges to earnings. |
• | We may be adversely affected by changes in U.S. tax laws. |
Risk Related to Regulation of Our Industry
• | The ongoing implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, could adversely affect our business, financial condition, and results of operations. |
• | We operate in a highly regulated environment and the laws and regulations that govern our operations, corporate governance, executive compensation and accounting principles, or changes in them, or our failure to comply with them, could adversely affect us. |
• | Federal banking agencies periodically conduct examinations of our business, including compliance with laws and regulations, and our failure to comply with any supervisory actions to which we are or become subject as a result of such examinations could adversely affect us. |
• | We are subject to stringent capital requirements, which may result in lower returns on equity, require the raising of additional capital, limit our ability to repurchase shares or pay dividends and discretionary bonuses, or result in regulatory action. |
• | Financial institutions, such as the Bank, face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations. |
• | We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions. |
• | Monetary policies and regulations of the Federal Reserve could adversely affect our business, financial condition and results of operations. |
• | We are subject to commercial real estate lending guidance issued by the federal banking regulators that impacts our operations and capital requirements. |
Risks Related to an Investment in Our Common Stock
• | The market price of our common stock may be subject to substantial fluctuations, which may make it difficult for you to sell your shares at the volume, prices and times desired. |
• | Securities analysts may not initiate or continue coverage on us. |
• | Our management and board of directors have significant control over our business. |
• | The holders of our existing debt obligations, as well as debt obligations that may be outstanding in the future, will have priority over our common stock with respect to payment in the event of liquidation, dissolution or winding up and with respect to the payment of interest. |
• | We may issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or could otherwise adversely affect holders of our common stock, which could depress the price of our common stock. |
• | We are an emerging growth company, and the reduced regulatory and reporting requirements applicable to emerging growth companies may make our common stock less attractive to investors. |
• | Our dividend policy may change without notice, and our future ability to pay dividends is subject to restrictions. |
• | Our corporate organizational documents and provisions of federal and state law to which we are subject contain certain provisions that could have an anti-takeover effect and may delay, make more difficult or prevent an attempted acquisition that you may favor or an attempted replacement of our board of directors or management. |
• | An investment in our common stock is not an insured deposit and is subject to risk of loss. |
Risks Related to Our Business
We may not be able to implement aspects of our expansion strategy, which may adversely affect our ability to maintain our historical earnings trends.
Our expansion strategy focuses on organic growth, supplemented by strategic acquisitions and expansion of the Bank’s banking location network, or
de novo branching. We may not be able to execute on aspects of our expansion strategy, which may impair our ability to sustain our historical rate of growth or prevent us from growing at all. More specifically, we may not be able to generate sufficient new loans and deposits within acceptable risk and expense tolerances, obtain the personnel or funding necessary for additional growth or find suitable acquisition candidates. Various factors, such as economic conditions and competition with other financial institutions, may impede or prohibit the growth18
of our operations, the opening of new banking locations and the consummation of acquisitions. Further, we may be unable to attract and retain experienced bankers, which could adversely affect our growth. The success of our strategy also depends on our ability to effectively manage growth, which is dependent upon a number of factors, including our ability to adapt our credit, operational, technology and governance infrastructure to accommodate expanded operations. If we fail to implement one or more aspects of our strategy, we may be unable to maintain our historical earnings trends, which could have an adverse effect on our business, financial condition and results of operations.
We may not be able to manage the risks associated with our anticipated growth and expansion through de novo branching.
Our business strategy includes evaluating strategic opportunities to grow through
de novo branching, and we believe that banking location expansion has been meaningful to our growth since inception. De novo branching carries with it certain potential risks, including significant startup costs and anticipated initial operating losses; an inability to gain regulatory approval; an inability to secure the services of qualified senior management to operate the de novo banking location and successfully integrate and promote our corporate culture; poor market reception for de novo banking locations established in markets where we do not have a preexisting reputation; challenges posed by local economic conditions; challenges associated with securing attractive locations at a reasonable cost; and the additional strain on management resources and internal systems and controls. Failure to adequately manage theWe may not be able to overcome the integration and other risks associated with acquisitions, which could have an adverse effect on our ability to implement our business strategy.
Although we plan to continue to grow our business organically and through
de novo branching, we also intend to pursue acquisition opportunities that we believe complement our activities and have the ability to enhance our profitability and provide attractive risk-adjusted returns. Our acquisition activities could be material to our business and involve a number of risks, including the following:• | intense competition from other banking organizations and other acquirers for potential merger candidates; |
• | market pricing for desirable acquisitions resulting in returns that are less attractive than we have traditionally sought to achieve; |
• | incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating potential transactions, resulting in our attention being diverted from the operation of our existing business; |
• | using inaccurate estimates and judgments to evaluate credit, operations, management and market risks with respect to the target institution or assets; |
• | potential exposure to unknown or contingent liabilities of banks and businesses we acquire, including consumer compliance issues; |
• | the time and expense required to integrate the operations and personnel of the combined businesses; |
• | experiencing higher operating expenses relative to operating income from the new operations; |
• | losing key employees and customers; |
• | reputational issues if the target’s management does not align with our culture and values; |
• | significant problems relating to the conversion of the financial and customer data of the target; |
• | integration of acquired customers into our financial and customer product systems; |
• | risks of impairment to goodwill; or |
• | regulatory timeframes for review of applications may limit the number and frequency of transactions we may be able to consummate. |
Depending on the condition of any institution or assets or liabilities that we may acquire, that acquisition may, at least in the near term, adversely affect our capital and earnings and, if not successfully integrated with our organization, may continue to have such effects over a longer period. We may not be successful in overcoming these risks or any other problems encountered in connection with pending or potential acquisitions, and any acquisition we may consider will be subject to prior regulatory approval. Our inability to overcome these risks could have an adverse effect on our ability to
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implement our business strategy, which, in turn, could have an adverse effect on our business, financial condition and results of operations.
A key piece of our expansion strategy is a focus on decision-making authority at the branch and market level, and our business, financial condition, results of operations and prospects could be adversely affected if our local teams do not follow our internal policies or are negligent in their decision-making.
In order to be able to provide the responsive and individualized customer service that distinguishes us from competitors and in order to attract and retain management talent, we empower our local management teams to make certain business decisions on the local level. Lending authorities are assigned to branch presidents and their banking teams based on their experience, with all loan relationships in excess of internal specified maximums being reviewed by the Bank’s Directors’ Loan Committee, comprised of senior management of the Bank, or the Bank’s board of directors, as the case may be. Our local lenders may not follow our internal procedures or otherwise act in our best interests with respect to their decision-making. A failure of our employees to follow our internal policies, or actions taken by our employees that are negligent or not in our best interests could have an adverse effect on our business, financial condition and results of operations.
As a business operating in the financial services industry, adverse conditions andin the general business or economic trends have recently and adversely affected the banking industry andenvironment could adversely affect our business, financial condition and results of operations in the future.
Our business and operations, which primarily consist of lending money to customers in the form of loans, borrowing money from customers in the form of deposits and investing in securities, are operatingsensitive to general business and economic conditions in an uncertainthe United States. Uncertainty about the federal fiscal policymaking process, and the medium and long-term fiscal outlook of the federal government and U.S. economy, is a concern for businesses, consumers and investors in the U.S. In addition, economic conditions in foreign countries, including global political hostilities or public health outbreaks and uncertainty over the stability of foreign currency, could affect the stability of global financial markets, which could hinder domestic economic growth. The current economic environment including generally uncertain conditions nationallyis characterized by interest rates at historically low levels, which impacts our ability to attract deposits and locallyto generate attractive earnings through our investment portfolio and we are unable to predict changes in our industry and markets. Although economic conditions have improved in recent years, financial institutions continue to be affected by volatility in the real estate market in some parts of the country and uncertain
The spread of COVID-19 has created a global public health crisis that has resulted in unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity in the creditworthiness of customersUnited States and to estimate the losses inherent in our loan portfolio is made more complex by uncertain market and economic conditions. Another national economic downturn or deterioration of conditions in our markets could result in losses beyond those that are provided for in our allowance for loan losses and leadglobally. Governmental responses to the following consequences:
Business and consumer customers of the Bank are experiencing varying degrees of financial distress, which couldmay adversely affect our liquidity position;their ability to timely pay interest and
While vaccinations for COVID-19 are now available in limited quantities, COVID-19 is not yet fully contained as different strains of the virus have developed and logistical and political issues with deployment of vaccinations, both in the US and abroad. As a result, COVID-19 could still impact significantly more households and businesses. Given the ongoing and dynamic nature of the circumstances, it is not possible to accurately predict the extent, severity or duration of these conditions or when normal economic and operating conditions will continueresume. For this reason, the extent to improve at a similar rate, or at all, orwhich the COVID-19 pandemic affects our business, operations and financial condition, as well as our regulatory capital and liquidity
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ratios and credit ratings, is highly uncertain and unpredictable and depends on, among other things, new information that an economic downturn will not occur again. Although real estate markets have generally stabilized in portionsmay emerge concerning the scope, duration and severity of the United States, including Texas, a resumptionCOVID-19 virus, mutations of declinesthe virus and actions taken by governmental authorities and other parties in real estate values, home sales volumesresponse to the pandemic. If the pandemic is prolonged, the adverse impact on the markets in which we operate and on our business, operations and financial stress on borrowers ascondition could deepen.
As a result of the uncertainCOVID-19 pandemic and the related adverse local and national economic environment, including job losses,consequences, we could be subject to any of the following risks, any of which could have ana material, adverse effect on our borrowers or their customers, which could adversely affect our business, financial condition, liquidity and results of operations. In addition, volatility in the oil and gas industry and relatively low energy prices could have an adverse effect on our borrowers or their customers, including declines in real estate values and job losses, which could adversely affect our business, financial condition and results of operations.operations:
• | Demand for our products and services may decline, making it difficult to grow assets and income. |
• | If the pandemic results in further reductions in economic activity, or if the pandemic-related reductions in economic activity persist for a longer time than customers expect, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income. |
• | Collateral for loans, especially real estate, may decline in value, which could cause credit losses to increase. |
• | Our allowance for credit losses may have to be increased if borrowers experience financial difficulties beyond any applicable modification periods, which will adversely affect our net income. |
• | The net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us. |
• | As the result of the decline in the Federal Reserve Board’s target federal funds rate, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income. |
• | A material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend. |
• | Our trust and wealth management revenues may decline with continuing market turmoil. |
• | A prolonged weakness in economic conditions resulting in a reduction of future projected earnings could result in our recording a valuation allowance against our current outstanding deferred tax assets. |
• | We rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us. |
• | FDIC premiums may increase if the agency experiences additional resolution costs. |
• | We may be subject to litigation as a result of our participation in PPP and other programs implemented in response to COVID-19, or changes in the terms of such programs or in the forgiveness or guaranty processes may adversely affect our net income. |
We may not be able to adequately measure and limit our credit risk, which could lead to unexpected losses.
The business of lending is inherently risky, including risks that the principal of or interest on any loan will not be repaid timely or at all or that the value of any collateral supporting the loan will be insufficient to cover our outstanding exposure. These risks may be affected by the strength of the borrower’s business sector and local, regional and national market and economic conditions. Many of our loans are made to small- to medium-sized businesses that may be less able to withstand competitive, economic and financial pressures than larger borrowers. Our risk management practices, such as monitoring the concentration of our loans within specific industries and our credit approval practices, may not adequately reduce credit risk, and our credit administration personnel, policies and procedures may not adequately adapt to changes in economic or any other conditions affecting customers and the quality of the loan portfolio. Many of our borrowers have received modifications of their loan terms or are reliant on temporary government programs, or both, and the ability of such borrowers to service their debt after such modifications and temporary government programs expire is dependent on a number of factors that are currently unknown, including the severity of the pandemic at the time of such expiration, government-imposed restrictions applicable to each borrower’s business at such time, and consumer attitudes and behavior. A failure to effectively measure and limit the credit risk associated with our loan portfolio could lead to unexpected losses and have an adverse effect on our business, financial condition and results of operations.
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We are dependent on the use of data and modeling in our management’s decision-making, and faulty data or modeling approaches could negatively impact our decision-making ability or possibly subject us to regulatory scrutiny in the future.
The use of statistical and quantitative models and other quantitative analyses is endemic to bank decision-making, and the employment of such analyses is becoming increasingly widespread in our operations. Liquidity stress testing, interest rate sensitivity analysis, and the identification of possible violations of anti-money laundering regulations are all examples of areas in which we are dependent on models and the data that underlies them. The use of statistical and quantitative models is also becoming more prevalent in regulatory compliance. While we are not currently subject to annual Dodd-Frank Act stress testing, or DFAST, and the Comprehensive Capital Analysis and Review, or CCAR, submissions, we anticipate that model-derived testing may become more extensively implemented by regulators in the future.
We anticipate data-based modeling will penetrate further into bank decision-making, particularly risk management efforts, as the capacities developed to meet rigorous stress testing requirements are able to be employed more widely and in differing applications. While we believe these quantitative techniques and approaches improve our decision-making, they also create the possibility that faulty data or flawed quantitative approaches could negatively
The small- to medium-sized businesses that we lend to may have fewer resources to weather adverse business developments, which may impair our borrowers’ ability to repay loans.
We focus our business development and marketing strategy primarily on small- to medium-sized businesses. As of December 31, 2017,2020, we had approximately $782.4 million$1.21 billion of loans to businesses, which represents approximately 57.6%64.8% of our total loan portfolio. Small- to medium-sized businesses frequently have smaller market shares than their competition, may be more vulnerable to economic downturns, often need substantial additional capital to expand or compete and may experience substantial volatility in operating results, any of which may impair a borrower’s ability to repay a loan. In addition, the success of a small- and medium-sized business often depends on the management skills, talents and efforts of a small group of people, and the death, disability or resignation of one or more of these people could have an adverse effect on the business and its ability to repay its loan. If our borrowers are unable to repay their loans, our business, financial condition and results of operations could be adversely affected.
Our commercial real estate and real estate construction loan portfolio exposes us to credit risks that may be greater than the risks related to other types of loans.
As of December 31, 2017,2020, approximately $710.5$943.1 million, or 52.3%50.5%, of our total loans were nonresidential real estate loans (including owner occupied commercial real estate loans), which included approximately $196.8$270.4 million, or 14.5%, of our total loans, that were construction and land development loans. These loans typically involve repayment dependent upon income generated, or expected to be generated, by the property securing the loan in amounts sufficient to cover operating expenses and debt service. The availability of such income for repayment may be adversely affected by changes in the economy or local market conditions. These loans expose a lender to greater credit risk than loans secured by other types of collateral because the collateral securing these loans is typically more difficult to liquidate due to the fluctuation of real estate values. Additionally, non-owner occupied commercial real estate loans generally involve relatively large balances to single borrowers or related groups of borrowers. Unexpected deterioration in the credit quality of our non-owner occupied commercial real estate loan portfolio could require us to increase our allowance for loancredit losses, which would reduce our profitability and could have an adverse effect on our business, financial condition and results of operations.
Construction and land development loans also involve risks because loan funds are secured by a project under construction and the project is of uncertain value prior to its completion. It can be difficult to accurately evaluate the total funds required to complete a project, and construction lending often involves the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project rather than the ability of a borrower or guarantor to repay the loan. If we are forced to foreclose on a project prior to completion, we may be unable to recover the entire unpaid portion of the loan. In addition, we may be required to fund additional amounts to complete a project, incur taxes, maintenance and compliance costs for a foreclosed property and may have to hold the property for an indeterminate period of time, any of which could adversely affect our business, financial condition and results of operations.
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Because a significant portion of our loan portfolio is comprised of real estate loans, negative changes in the economy affecting real estate values and liquidity could impair the value of collateral securing our real estate loans and result in loan and other losses.
As of December 31, 2017,2020, approximately $1.08$1.35 billion, or 79.8%72.5%, of our total loans were loans with real estate as a primary or secondary component of collateral. Real estate values in many Texas markets have experienced periods of fluctuation over the last five years. The market value of real estate can fluctuate significantly in a short period of time. As a result, adverse developments affecting real estate values and the liquidity of real estate in our primary markets or in Texas generally could increase the credit risk associated with our loan portfolio, and could result in losses that adversely affect credit quality, financial condition and results of operations. Negative changes in the economy affecting real estate values and liquidity in our market areas could significantly impair the value of property pledged as collateral on loans and affect our ability to sell the collateral upon foreclosure without a loss or additional losses. Collateral may have to be sold for less than the outstanding balance of the loan, which could result in losses on such loans. Such declines and losses would have an adverse effect on our business, financial condition and results of operations. If real estate values decline, it is also more likely that we would be required to increase our allowance for loan losses, which would adversely affect our business, financial condition and results of operations.
Appraisals and other valuation techniques we use in evaluating and monitoring loans secured by real property, other real estate owned and repossessed personal property may not accurately describe the net value of the asset.
In considering whether to make a loan secured by real property, we generally require an appraisal of the property. However, an appraisal is only an estimate of the value of the property at the time the appraisal is made, and, as real estate values may change significantly in value in relatively short periods of time (especially in periods of heightened economic uncertainty), this estimate may not accurately describe the net value of the real property collateral after the loan is made. As a result, we may not be able to realize the full amount of any remaining indebtedness when we foreclose on and sell the relevant property. In addition, we rely on appraisals and other valuation techniques to establish the value of our other real estate owned, or OREO, and personal property that we acquire through foreclosure proceedings and to determine certain loan impairments.estimated losses. If any of these valuations are inaccurate, our combined and consolidated financial statements may not reflect the correct value of our OREO, and our allowance for loancredit losses may not reflect accurate loan impairments.estimate losses. This could have an adverse effect on our business, financial condition or results of operations. As of December 31, 2017,2020, we held OREO and repossessed property and equipment that was valued at $2.2 million$404,000 and $2.5 million,$6,000, respectively.
We engage in lending secured by real estate and may be forced to foreclose on the collateral and own the underlying real estate, subjecting us to the costs and potential risks associated with the ownership of the real property, or consumer protection initiatives or changes in state or federal law may substantially raise the cost of foreclosure or prevent us from foreclosing at all.
Since we originate loans secured by real estate, we may have to foreclose on the collateral property to protect our investment and may thereafter own and operate such property, in which case we would be exposed to the risks inherent in the ownership of real estate. As of December 31, 2017,2020, we held approximately $2.2 million$404,000 in OREO in a special purpose subsidiary that is currently marketed for sale. The amount that we, as a mortgagee, may realize after a default is dependent upon factors outside of our control, including, but not limited to general or local economic condition, environmental cleanup liability, assessments, interest rates, real estate tax rates, operating expenses of the mortgaged properties, ability to obtain and maintain adequate occupancy of the properties, zoning laws, governmental and regulatory rules, and natural disasters. Our inability to manage the amount of costs or size of the risks associated with the ownership of real estate, or writedownswrite-downs in the value of other real estate owned, could have an adverse effect on our business, financial condition and results of operations.
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Additionally, consumer protection initiatives or changes in state or federal law may substantially increase the time and expense associated with the foreclosure process or prevent us from foreclosing at all. While historically Texas has had foreclosure laws that are favorable to lenders, a number of states in recent years have either considered or adopted foreclosure reform laws that make it substantially more difficult and expensive for lenders to foreclose on properties in default, and we cannot be certain that Texas will not adopt similar legislation in the future. Foreclosure and eviction moratoria were put in place in many markets in response to the COVID-19 pandemic, and those moratoria may delay or prevent foreclosures. Additionally, federal regulators have prosecuted a number of mortgage servicing companies for alleged consumer law violations. If new state or federal laws or regulations are ultimately enacted that significantly raise the cost of foreclosure or raise outright barriers, such could have an adverse effect on our business, financial condition and results of operation.
A portion of our loan portfolio is comprised of commercial loans secured by receivables, inventory, equipment or other commercial collateral, the deterioration in value of which could expose us to credit losses.
As of December 31, 2017,2020, approximately $197.5$306.0 million, or 14.5%16.4%, of our total loans were commercial loans to businesses.businesses, excluding PPP. In general, these loans are collateralized by general business assets, including, among other things, accounts receivable, inventory and equipment, and most are backed by a personal guaranty of the borrower or principal. These commercial loans are typically larger in amount than loans to individuals and, therefore, have the potential for larger losses on a single loan basis. Additionally, the repayment of commercial loans is subject to the ongoing business operations of the borrower. The collateral securing such loans generally includes moveable property such as equipment and inventory, which may decline in value more rapidly than we anticipate exposing us to increased credit risk. In addition, a portion of our customer base, including customers in the energy and real estate business, may be in industries which are particularly sensitive to commodity prices or market fluctuations, such as energy prices. Accordingly, negative changes in commodity prices and real estate values and liquidity could impair the value of the collateral securing these loans. Significant adverse changes in the economy or local market conditions in which our commercial lending customers operate could cause rapid declines in loan collectability and the values associated with general business assets resulting in inadequate collateral coverage that may expose us to credit losses and could adversely affect our business, financial condition and results of operations.
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Our allowance for loancredit losses may prove to be insufficient to absorb potential losses in our loan portfolio.
We maintain an allowance for loancredit losses that represents management’s judgment of probable losses and risks inherent in our loan portfolio. As of December 31, 2017,2020, our allowance for loan losses totaled $12.9$33.6 million, which represents approximately 0.95%1.80% of our total loans. The level of the allowance reflects management’s continuing evaluation of general economic conditions, diversification and seasoning of the loan portfolio, historic loss experience, identified credit problems, delinquency levels and adequacy of collateral. The determination of the appropriate level of the allowance for loancredit losses is inherently highly subjective and requires us to make significant estimates of and assumptions regarding current credit risks and future trends, all of which may undergo material changes. Inaccurate management assumptions, deterioration of economic conditions affecting borrowers, new information regarding existing loans, identification or deterioration of additional problem loans, acquisition of problem loans and other factors, both within and outside of our control, may require us to increase our allowance for loancredit losses. In addition, our regulators, as an integral part of their periodic examination, review our methodology for calculating, and the adequacy of, our allowance for loancredit losses and may direct us to make additions to the allowance based on their judgments about information available to them at the time of their examination. Further, if actual charge-offs in future periods exceed the amounts allocated to the allowance for loancredit losses, we may need additional provisions for loancredit losses to restore the adequacy of our allowance for loancredit losses. Finally, the measure of our allowance for loancredit losses is dependent on the adoption and interpretation of accounting standards. The Financial Accounting Standards Board recently issued a new credit impairment model, the Current Expected Credit Loss, or CECL model, which will becomebecame applicable to us on January 1, 2020, though we may choose to adopt2020. CECL on January 1, 2019, or may be encouraged by our regulators to do so. CECL will requirerequires financial institutions to estimate and develop a provision for credit losses at origination for the lifetime of the loan, as opposed to reserving for incurred or probable losses up to the balance sheet date. Under the CECL model, credit deterioration would beis reflected in the income statement in the period of origination or acquisition of the loan, with changes in expected credit losses due to further credit deterioration or improvement reflected in the periods in which the expectation changes. Accordingly, the CECL model could requirerequired many financial institutions, like the Bank, to increase their allowances for loancredit losses. Moreover, the CECL model likely would create more volatilityIncreases in our level of allowance for loan losses. If we are required to materially increase our level of allowance for loancredit losses for any reason, such increase could adversely affect our business, financial condition and results of operations.
If we fail to maintain effective internal control over financial reporting, we may not be able to report our financial results accurately and timely, in which case our business may be harmed, investors may lose confidence in the accuracy and completeness of our financial reports, we could be subject to regulatory penalties and the price of our common stock may decline.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for evaluating and reporting on that system of internal control. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. As a public company, we are required to comply with the Sarbanes-Oxley Act and other rules that govern public companies. In particular, we are required to certify our compliance with Section 404 of the Sarbanes-Oxley Act beginning with our second annual report on Form 10-K, which will require us to furnish annually a report by management on the effectiveness of our internal control over financial reporting. In addition, unless we remain an emerging growth company and elect additional transitional relief available to emerging growth companies, our independent registered public accounting firm may be required to report on the effectiveness of our internal control over financial reporting beginning as of that second annual report on Form 10-K.
We will continue to periodically test and update, as necessary, our internal control systems, including our financial reporting controls. Our actions, however, may not be sufficient to result in an effective internal control environment, and any future failure to maintain effective internal control over financial reporting could impair the reliability of our financial statements which in turn could harm our business, impair investor confidence in the accuracy and completeness of our financial reports and our access to the capital markets and cause the price of our common stock to decline and subject us to regulatory penalties.
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We rely heavily on our executive management team and other key employees, and we could be adversely affected by the unexpected loss of their services.
Our success depends in large part on the performance of our executive management team and other key personnel, as well as on our ability to attract, motivate and retain highly qualified senior and middle management and
We earn income by originating residential mortgage loans for resale in the secondary mortgage market, and disruptions in that market could reduce our operating income.
Historically, we have earned income by originating mortgage loans for sale in the secondary market. A historical focus of our loan origination and sales activities has been to enter into formal commitments and informal agreements with larger banking companies and mortgage investors. Under these arrangements, we originate single family mortgages that are priced and underwritten to conform to previously agreed criteria before loan funding and are delivered to the investor shortly after funding. For the years ended December 31, 20172020 and 2016,2019, we earned approximately $2.0$6.8 million and $1.7$2.9 million, respectively, from these activities. However, in the recent past, disruptions in the secondary market for residential mortgage loans have limited the market for, and liquidity of, most mortgage loans other than conforming Fannie Mae and Federal Home Loan Mortgage Corporation, or Freddie Mac, loans. The effects of these disruptions in the secondary market for residential mortgage loans may reappear.
In addition, because government-sponsored entities like Fannie Mae and Freddie Mac, who account for a substantial portion of the secondary market, are governed by federal law, any future changes in laws that significantly affect the activity of these entities could, in turn, adversely affect our operations. In September 2008, Fannie Mae and Freddie Mac were placed into conservatorship by the federal government. The federal government has for many years considered proposals to reform Fannie Mae and Freddie Mac, but the results of any such reform and their impact on us are difficult to predict. To date, no reform proposal has been enacted.
These disruptions may not only affect us but also the ability and desire of mortgage investors and other banks to purchase residential mortgage loans that we originate. As a result, we may not be able to maintain or grow the income we receive from originating and reselling residential mortgage loans, which would reduce our operating income. Additionally, we may be required to hold mortgage loans that we originated for sale, increasing our exposure to interest rate risk and the value of the residential real estate that serves as collateral for the mortgage loan.
Delinquencies, defaults and foreclosures in residential mortgages create a higher risk of repurchases and indemnity requests.
We originate residential mortgage loans for sale to government-sponsored enterprises, such as Fannie Mae, Freddie Mac and other investors. As a part of this process, we make various representations and warranties to these purchasers that are tied to the underwriting standards under which the investors agreed to purchase the loan. If a representation or warranty proves to be untrue, we could be required to repurchase one or more of the mortgage loans or indemnify the investor. Repurchase and indemnity obligations tend to increase during weak economic times, as investors seek to pass on the risks associated with mortgage loan delinquencies to the originator of the mortgage. If we are forced to repurchase additional mortgage loans that we have previously sold to investors, or indemnify those investors, our business, financial condition and results of operations could be adversely affected.
A lack of liquidity could impair our ability to fund operations and adversely impact our business, financial condition and results of operations.
Liquidity is essential to our business. We rely on our ability to generate deposits and effectively manage the repayment and maturity schedules of our loans and investment securities, respectively, to ensure that we have adequate liquidity to fund our operations. An inability to raise funds through deposits, borrowings, the sale of our investment securities, the sale of loans, and other sources could have a substantial negative effect on our liquidity.
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Our most important source of funds is deposits. As of December 31, 2017,2020, approximately $1.38$1.91 billion, or 82.3%83.1%, of our total deposits were demand, savings and money market accounts. Historically our savings, money market deposit accounts and demand accounts have been stable sources of funds. However, these deposits are subject to potentially dramatic fluctuations in availability or price due to certain factors that may be outside of our
The $296.8$378.7 million remaining balance of deposits consisted of certificates of deposit, of which $224.8$306.8 million, or 13.4% of our total deposits, were due to mature within one year. Historically, a majority of our certificates of deposit are renewed upon maturity as long as we pay competitive interest rates. These customers are, however, interest-rate conscious and may be willing to move funds into higher-yielding investment alternatives. If customers transfer money out of the Bank’s deposits and into other investments such as money market funds, we would lose a relatively low-cost source of funds, increasing our funding costs and reducing our net interest income and net income.
Other primary sources of funds consist of cash flows from operations, maturities and sales of investment securities, and proceeds from the issuance and sale of our equity and debt securities to investors. Additional liquidity is provided by our ability to borrow from the Federal Reserve Bank of Dallas and the Federal Home Loan Bank of Dallas, or the FHLB. We also may borrow funds from third-party lenders, such as other financial institutions. Our access to funding sources in amounts adequate to finance or capitalize our activities, or on terms that are acceptable to us, could be impaired by factors that affect us directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry. Our access to funding sources could also be affected by a decrease in the level of our business activity as a result of a downturn in Texas or by one or more adverse regulatory actions against us.
Any decline in available funding could adversely impact our ability to originate loans, invest in securities, meet our expenses, or fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could, in turn, have an adverse effect on our business, financial condition and results of operations.
We may need to raise additional capital in the future, and such capital may not be available when needed or at all.
We may need to raise additional capital, in the form of additional debt or equity, in the future to have sufficient capital resources and liquidity to meet our commitments and fund our business needs and future growth, particularly if the quality of our assets or earnings were to deteriorate significantly. Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time, which are outside of our control, and our financial condition. Economic conditions and a loss of confidence in financial institutions may increase our cost of funding and limit access to certain customary sources of capital, including interbank borrowings, repurchase agreements and borrowings from the discount window of the Federal Reserve System. We may not be able to obtain capital on acceptable terms — or at all. Any occurrence that may limit our access to the capital markets, such as a decline in the confidence of debt purchasers, depositors of our bank or counterparties participating in the capital markets or other disruption in capital markets, may adversely affect our capital costs and our ability to raise capital and, in turn, our liquidity. Further, if we need to raise capital in the future, we may have to do so when many other financial institutions are also seeking to raise capital and would then have to compete with those institutions for investors. An inability to raise additional capital on acceptable terms when needed could have a material adverse effect on our business, financial condition or results of operations.
We have a concentration of deposit accounts with state and local municipalities that is a material source of our funding, and the loss of these deposits or significant fluctuations in balances held by these public bodies could force us to fund our business through more expensive and less stable sources.
As of December 31, 2017, $287.62020, $324.9 million, or approximately 17.2%14.2%, of our total deposits consisted of deposit accounts of public bodies, such as state or local municipalities, or public funds. These types of deposits are often secured and typically fluctuate on a seasonal basis due to timing differences between tax collection and expenditures. Withdrawals of deposits or significant fluctuation in a material portion of our largest public fund depositors could force us to rely more heavily on borrowings and other sources of funding for our business and withdrawal demands, adversely affecting our net interest margin and results of operations. We may also be forced, as a result of any withdrawal of deposits, to rely more heavily on other, potentially more expensive and less stable funding sources. Consequently, the occurrence of any of these events could have an adverse effect on our business, financial condition and results of operations.
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We are subject to interest rate risk and fluctuations in interest rates may adversely affect our earnings.
The majority of our banking assets and liabilities are monetary in nature and subject to risk from changes in interest rates. Like most financial institutions, our earnings are significantly dependent on our net interest income, the principal component of our earnings, which is the difference between interest earned by us from our interest-earning assets, such as loans and investment securities, and interest paid by us on our interest-bearing liabilities, such as deposits and borrowings. We expect that we will periodically experience “gaps” in the interest rate sensitivities of our assets and liabilities, meaning that either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest-earning assets, or vice versa. In either event, if market interest rates should move contrary to our position, this “gap” will negatively impact our earnings. The impact on earnings is more adverse when the slope of the yield curve flattens, that is, when short-term interest rates increase more than long-term interest rates or when long-term interest rates decrease more than short-term interest rates. Many factors impact interest rates, including governmental monetary policies, inflation, recession, changes in unemployment, the money supply and international economic weakness and disorder and instability in domestic and foreign financial markets. As of December 31, 2017,2020, approximately 46.87%52.6% of our interest-earning assets and approximately 57.39%49.3% of our interest-bearing liabilities had a variable rate. Our interest rate sensitivity profile was asset sensitive as of December 31, 2017,2020, meaning that we estimate our net interest income would increase more from rising interest rates than from falling interest rates.
Interest rate increases often result in larger payment requirements for our borrowers, which increases the potential for default and could result in a decrease in the demand for loans. At the same time, the marketability of the property securing a loan may be adversely affected by any reduced demand resulting from higher interest rates. In a declining interest rate environment, there may be an increase in prepayments on loans as borrowers refinance their loans at lower rates. In addition, in a low interest rate environment, loan customers often pursue long-term fixed rate credits, which could adversely affect our earnings and net interest margin if rates increase. Changes in interest rates also can affect the value of loans, securities and other assets. An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest on loans may lead to an increase in nonperforming assets and a reduction of income recognized, which could have an adverse effect on our results of operations and cash flows. Further, when we place a loan on nonaccrual status, we reverse any accrued but unpaid interest receivable, which decreases interest income. At the same time, we continue to have a cost to fund the loan, which is reflected as interest expense, without any interest income to offset the associated funding expense. Thus, an increase in the amount of nonperforming assets would have an adverse impact on net interest income. If short-term interest rates continue to remain at their historically low levels for a prolonged period and assuming longer-term interest rates fall further, we could experience net interest margin compression as our interest-earning assets would continue to reprice downward while our interest-bearing liability rates could fail to decline in tandem. Such an occurrence would have an adverse effect on our net interest income and could have an adverse effect on our business, financial condition and results of operations.
We may be adversely affected by changes in the method of determining the London Interbank Offered Rate (“LIBOR”), or the replacement of LIBOR with an alternative reference rate, for our variable rate loans, derivative contracts and other financial assets and liabilities.
Our balance sheet includes certain assets and liabilities which are directly or indirectly dependent on LIBOR to establish their interest rate and/or value. The U.K. Financial Conduct Authority announced in 2017 that it would no longer compel banks to submit rates for the calculation of LIBOR after 2021, although in 2020 it announced that certain LIBOR-based indices would continue through 2023. It is not possible to predict whether banks will continue to provide LIBOR submissions to the administrator of LIBOR, whether LIBOR rates will cease to be published or supported in the future or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere. It is expected that a transition away from the widespread use of LIBOR to alternative rates is likely to occur during the next several years.
The impact of these developments on our business and financial results is not yet known. The transition from LIBOR may cause us to incur increased costs and additional risk. Uncertainty as to the nature of alternative reference rates and as to potential changes in or other reforms to LIBOR may adversely affect LIBOR rates and the value of LIBOR-based loans. If LIBOR rates are no longer available, any successor or replacement interest rates may perform differently, which may affect our net interest income, change our market risk profile and require changes to our risk, pricing and hedging strategies. Any failure to adequately manage this transition could adversely impact our reputation.
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Our business is concentrated in, and largely dependent upon, the continued growth and welfare of our primary markets, and adverse economic conditions in these markets could negatively impact our operations and customers.
Our business, financial condition and results of operations are affected by changes in the economic conditions of our primary markets of East Texas, Central Texas, Houston MSA and the Dallas/Fort Worth metroplex.MSA. Our success depends to a significant extent upon the business activity, population, income levels, employment trends, deposits and real estate activity in our primary markets. Economic conditions within our primary markets, and the state of Texas in general, are influenced by the energy sector generally and the price of oil and gas specifically. Although our customers’ business and financial interests may extend well beyond our primary markets, adverse conditions that affect our primary markets, including future declines in oil prices, could reduce our growth rate, affect the ability of our customers to repay their loans, affect the value of collateral underlying our loans, affect our ability to attract deposits and generally affect our business, financial condition, results of operations and future prospects. Due to our geographic concentration within our primary markets, we may be less able than other larger regional or national financial institutions to diversify our credit risks across multiple markets.
We face strong competition from financial services companies and other companies that offer banking services.
We operate in the highly competitive financial services industry and face significant competition for customers from financial institutions located both within and beyond our principal markets. We compete with commercial banks, savings banks, credit unions, nonbank financial services companies and other financial institutions operating within
Many of our non-bank competitors are not subject to the same extensive regulations that govern our activities and may have greater flexibility in competing for business. The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. In addition, some of our current commercial banking customers may seek alternative banking sources as they develop needs for credit facilities larger than we may be able to accommodate. Our inability to compete successfully in the markets in which we operate could have an adverse effect on our business, financial condition or results of operations.
Our trust and wealth management division derives its revenue from noninterest income and is subject to operational, compliance, reputational, fiduciary and strategic risks that could adversely affect our business, financial condition and results of operations.
Our trust and wealth management division subjects us to a number of different risks from our commercial activities, any of which could adversely affect our business, financial condition and results of operations. Operational or compliance risk entails inadequate or failed internal processes, people and systems or changes driven by external events. Success in the trust and wealth management business is highly dependent on reputation. Damage to our reputation from negative opinion in the marketplace could adversely impact both revenue and net income. Such results could also be affected by errors in judgment by management or the board, the improper implementation of business decisions or by unexpected external events. Our success in this division is also dependent upon our continuing ability to generate investment results that satisfy our clients and attract prospective clients, which may be adversely impacted by factors that are outside of our control. In addition, our trust and wealth management division is subject to fiduciary risks and risks associated with adverse decisions regarding the scope of fiduciary liabilities. If any claims or legal actions regarding our fiduciary role are not resolved in a manner favorable to us, we may be exposed to significant financial liability and our reputation could be damaged. Either of these results may adversely impact demand for our products and services, including those unrelated to our trust and wealth management division, or otherwise have an adverse effect on our business, financial condition or results of operation.
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Additional risks resulting from our mortgage warehouse lending business could have an adverse effect on our business, financial condition and results of operations.
A portion of our lending involves the origination of mortgage warehouse lines of credit. Risks associated with our mortgage warehouse loans include credit risks relating to the mortgage bankers that borrow from us, including the risk of intentional misrepresentation or fraud; changes in the market value of mortgage loans originated by the mortgage banker, the sale of which is the expected source of repayment of the borrowings under a warehouse line of credit, due to changes in interest rates during the time in warehouse; and originations of mortgage loans that are unsalable or impaired, which could lead to decreased collateral value and the failure of a purchaser of the mortgage loan to ultimately purchase the loan from the mortgage banker. Any one or a combination of these events may adversely affect our loan portfolio and may result in increased delinquencies, loan losses and increased future provision levels, which, in turn, could adversely affect our business, financial condition and results of operations.
New lines of business, products, product enhancements or services may subject us to additional risks.
From time to time, we implement new lines of business, or offer new products and product enhancements as well as new services within our existing lines of business and we will continue to do so in the future. For example, in 2017, we established our Small Business Association lending division. We also have plans to enhance our trust and wealth management division. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In implementing, developing or marketing new lines of business,
Negative public opinion regarding our company or failure to maintain our reputation in the communities we serve could adversely affect our business and prevent us from growing our business.
As a community bank, our reputation within the communities we serve is critical to our success. We believe we have set ourselves apart from our competitors by building strong personal and professional relationships with our customers and by being active members of the communities we serve. As such, we strive to enhance our reputation by recruiting, hiring and retaining employees who share our core values of being an integral part of the communities we serve and delivering superior service to our customers. If our reputation is negatively affected by the actions of our employees or otherwise, we may be less successful in attracting new talent and customers or may lose existing customers, and our business, financial condition and results of operations could be adversely affected. Further, negative public opinion can expose us to litigation and regulatory action and delay and impede our efforts to implement our expansion strategy, which could further adversely affect our business, financial condition and results of operations.
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We could recognize losses on investment securities held in our securities portfolio, particularly if interest rates increase or economic and market conditions deteriorate.
While we attempt to invest a significant majority of our total assets in loans (our loan to asset ratio was 69.27%68.1% as of December 31, 2017)2020), we invest a percentage of our total assets (20.74%(13.9% as of December 31, 2017)2020) in investment securities with the primary objectives of providing a source of liquidity, providing an appropriate return on funds invested, managing interest rate risk, meeting pledging requirements and meeting regulatory capital requirements. As of December 31, 2017,2020, the fair value of our available for sale investment securities portfolio was $232.4$380.8 million, which included a net unrealized lossgain of $3.5$17.7 million. Factors beyond our control can significantly and adversely influence the fair value of securities in our portfolio. For example, fixed-rate securities are generally subject to decreases in market value when interest rates rise. Additional factors include, but are not limited to, rating agency downgrades of the securities, defaults by the issuer or individual borrowers with respect to the underlying securities, and instability in the credit markets. Any of the foregoing factors could cause other-than-temporary impairment in future periods and result in realized losses. The process for determining whether impairment is other-than-temporary usually requires difficult, subjective judgments about the future financial performance of the issuer and any collateral underlying the security in order to assess the probability of receiving all contractual principal and interest payments on the security. Because of changing economic and market conditions affecting interest rates, the financial condition of issuers of the securities and the performance of the underlying collateral, we may recognize realized and/or unrealized losses in future periods, which could have an adverse effect on our business, financial condition and results of operations.
The accuracy of our financial statements and related disclosures could be affected if the judgments, assumptions or estimates used in our critical accounting policies are inaccurate.
The preparation of financial statements and related disclosures in conformity with GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. Our critical accounting policies, which are included in the section captioned “
Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K, describe those significant accounting policies and methods used in the preparation of our consolidated financial statements that we consider “critical” because they require judgments, assumptions and estimates that materially affect our consolidated financial statements and related disclosures. As a result, if future events or regulatory views concerning such analysis differ significantly from the judgments, assumptions and estimates in our critical accounting policies, those events or assumptions could have a material impact on our consolidated financial statements and related disclosures, in each case resulting in our needing to revise or restate prior period financial statements,There could be material changes to our financial statements and disclosures if there are changes in accounting standards or regulatory interpretations of existing standards
From time to time the Financial Accounting Standards Board or the SEC may change the financial accounting and reporting standards that govern the preparation of our financial statements. Such changes may result in us being subject to new or changing accounting and reporting standards. In addition, the bodies that interpret the accounting standards (such as banking regulators or outside auditors) may change their interpretations or positions on how new or existing standards should be applied. These changes may be beyond our control, can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retrospectively, or apply an existing standard differently and retrospectively, in each case resulting in our needing to revise or restate prior period financial statements, which could materially change our financial statements and related disclosures, cause damage to our reputation and the price of our common stock, and adversely affect our business, financial condition and results of operations.
Our operations could be interrupted if our third-party service providers experience difficulty, terminate their services or fail to comply with banking regulations.
We outsource some of our operational activities and accordingly depend on a number of relationships with third-party service providers. Specifically, we rely on third parties for certain services, including, but not limited to, core systems support, informational website hosting, internet services, online account opening and other processing services. Our business depends on the successful and uninterrupted functioning of our information technology and telecommunications systems and third-party servicers. The failure of these systems, a cyber security breach involving any of our third-party service providers, or the termination or change in terms of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations. Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if
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demand for such services exceeds capacity or such third-party systems fail or experience interruptions. Replacing vendors or addressing other issues with our third-party service providers could entail significant delay, expense and disruption of service.
As a result, if these third-party service providers experience difficulties, are subject to cyber security breaches, or terminate their services, and we are unable to replace them with other service providers, particularly on a timely basis, our operations could be interrupted. If an interruption were to continue for a significant period of time, our business, financial condition and results of operations could be adversely affected. Even if we are able to replace third-party service providers, it may be at a higher cost to us, which could adversely affect our business, financial condition and results of operations.
In addition, the Bank’s primary federal regulator, the Office of the Comptroller of the Currency, or OCC, has recently issued guidance outlining the expectations for third-party service provider oversight and monitoring by financial institutions. The federal banking agencies, including the OCC, have recently issued enforcement actions against financial institutions for failure in oversight of third-party providers and violations of federal banking law by such providers when performing services for financial institutions. Accordingly, our operations could be interrupted if any of our third-party service providers experience difficulty, are subject to cyber security breaches, terminate their services or fail to comply with banking regulations, which could adversely affect our business, financial condition and results of operations. In addition, our failure to adequately oversee the actions of our third-party service providers could result in regulatory actions against the Bank, which could adversely affect our business, financial condition and results of operations.
System failure or cyber security breaches of our network security could subject us to increased operating costs as well as litigation and other potential losses.
Our computer systems and network infrastructure could be vulnerable to hardware and cyber security issues. Our operations are dependent upon our ability to protect our computer equipment against damage from fire, power loss, telecommunications failure or a similar catastrophic event. We could also experience a breach by intentional or negligent conduct on the part of employees or other internal sources. Any damage or failure that causes an interruption in our operations could have an adverse effect on our financial condition and results of operations. In addition, our operations are dependent upon our ability to protect our computer systems and network infrastructure, including our digital, mobile and internet banking activities, against damage from physical break-ins, cyber security breaches and
We have a continuing need for technological change, and we may not have the resources to effectively implement new technology, or we may experience operational challenges when implementing new technology or technology needed to compete effectively with larger institutions may not be available to us on a cost effective basis.
The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services. In addition to better serving customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs. Our future success will depend, at least in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience as well as to create additional efficiencies in our operations as we continue to grow and expand our products and service offerings. We may experience operational challenges as we implement these new technology enhancements or products, which could impair our ability to realize the anticipated benefits from such new technology or require us to incur significant costs to remedy any such challenges in a timely manner.
Many of our larger competitors have substantially greater resources to invest in technological improvements. Third parties upon which we rely for our technology needs may not be able to develop on a cost effective basis systems
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that will enable us to keep pace with such developments. As a result, they may be able to offer additional or superior products compared to those that we will be able to provide, which would put us at a competitive disadvantage. We may lose customers seeking new technology-driven products and services to the extent we are unable to provide such products and services. Accordingly, the ability to keep pace with technological change is important and the failure to do so could adversely affect our business, financial condition and results of operations.
We are subject to certain operational risks, including, but not limited to, customer, employee or third-party fraud and data processing system failures and errors.
Employee errors and employee or customer misconduct could subject us to financial losses or regulatory sanctions and seriously harm our reputation. Misconduct by our employees could include hiding unauthorized activities from us, improper or unauthorized activities on behalf of our customers or improper use of confidential information. It is not always possible to prevent employee errors and misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases. Employee errors could also subject us to financial claims for negligence.
We maintain a system of internal controls to mitigate operational risks, including data processing system failures and errors and customer or employee fraud, as well as insurance coverage designed to protect us from material losses associated with these risks, including losses resulting from any associated business interruption. If our internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could adversely affect our business, financial condition and results of operations.
In addition, we rely heavily upon information supplied by third parties, including the information contained in credit applications, property appraisals, title information, equipment pricing and valuation and employment and income documentation, in deciding which loans we will originate, as well as the terms of those loans. If any of the information upon which we rely is misrepresented, either fraudulently or inadvertently, and the misrepresentation is not detected prior to loan funding, the value of the loan may be significantly lower than expected, or we may fund a loan that we would not have funded or on terms we would not have extended. Whether a misrepresentation is made by the applicant or another third party, we generally bear the risk of loss associated with the misrepresentation. A loan subject to a material misrepresentation is typically unsellable or subject to repurchase if it is sold prior to detection of the misrepresentation. The sources of the misrepresentations are often difficult to locate, and it is often difficult to recover
Our primary markets are susceptible to natural disasters and other catastrophes that could negatively impact the economies of our markets, our operations or our customers, any of which could have an adverse effect on us.
A significant portion of our business is generated from our primary markets of East Texas, Central Texas, and the Dallas/Fort Worth metroplex,MSA and the Houston MSA, which are susceptible to damage by tornadoes, floods, droughts, hurricanes and other natural disasters and adverse weather. In addition to natural disasters, man-made events, such as acts of terror and governmental response to acts of terror, malfunction of the electronic grid and other infrastructure breakdowns, could adversely affect economic conditions in our primary markets. These catastrophic events can disrupt our operations, cause widespread property damage, and severely depress the local economies in which we operate. If the economies in our primary markets experience an overall decline as a result of a catastrophic event, demand for loans and our other products and services could be reduced. In addition, the rates of delinquencies, foreclosures, bankruptcies and losses on loan portfolios may increase substantially, as uninsured property losses or sustained job interruption or loss may materially impair the ability of borrowers to repay their loans. Moreover, the value of real estate or other collateral that secures the loans could be materially and adversely affected by a catastrophic event. A natural disaster or other catastrophic event could, therefore, result in decreased revenue and loan losses that have an adverse effect on our business, financial condition and results of operations.
We may be subject to environmental liabilities in connection with the real properties we own and the foreclosure on real estate assets securing our loan portfolio.
In the course of our business, we may purchase real estate in connection with our acquisition and expansion efforts, or we may foreclose on and take title to real estate or otherwise be deemed to be in control of property that serves as collateral on loans we make. As a result, we could be subject to environmental liabilities with respect to those properties. We may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or we may be required to investigate or clean up hazardous or toxic substances or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. In addition, if we are the owner or former
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owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property.
The cost of removal or abatement may substantially exceed the value of the affected properties or the loans secured by those properties, we may not have adequate remedies against the prior owners or other responsible parties and we may not be able to resell the affected properties either before or after completion of any such removal or abatement procedures. If material environmental problems are discovered before foreclosure, we generally will not foreclose on the related collateral or will transfer ownership of the loan to a subsidiary. It should be noted, however, that the transfer of the property or loans to a subsidiary may not protect us from environmental liability. Furthermore, despite these actions on our part, the value of the property as collateral will generally be substantially reduced or we may elect not to foreclose on the property and, as a result, we may suffer a loss upon collection of the loan. Any significant environmental liabilities could have an adverse effect on our business, financial condition and results of operations.
We are subject to claims and litigation pertaining to intellectual property.
Banking and other financial services companies, such as our company, rely on technology companies to provide information technology products and services necessary to support their day-to-day operations. Technology companies frequently enter into litigation based on allegations of patent infringement or other violations of intellectual property rights. In addition, patent holding companies seek to monetize patents they have purchased or otherwise obtained. Competitors of our vendors, or other individuals or companies, may from time to time claim to hold intellectual property sold to us by our vendors. Such claims may increase in the future as the financial services sector becomes more reliant on information technology vendors. The plaintiffs in these actions frequently seek injunctions and substantial damages.
Regardless of the scope or validity of such patents or other intellectual property rights, or the merits of any claims by potential or actual litigants, we may have to engage in protracted litigation. Such litigation is often expensive, time-consuming, disruptive to our operations and distracting to management. If we are found to infringe one or more
If the goodwill that we have recorded or may record in connection with a business acquisition becomes impaired, it could require charges to earnings.
Goodwill represents the amount by which the cost of an acquisition exceeded the fair value of net assets we acquired in connection with the purchase of another financial institution. We review goodwill for impairment at least annually, or more frequently if a triggering event occurs which indicates that the carrying value of the asset might be impaired.
Our goodwill impairment test involves a two-step process. Under the first step, the estimation of fair value of the reporting unit is compared to its carrying value including goodwill. If step one indicates a potential impairment, the second step is performed to measure the amount of impairment, if any. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. Any such adjustments are reflected in our results of operations in the periods in which they become known. As of December 31, 2017,2020, our goodwill totaled $18.7$32.2 million. While we have not recorded any impairment charges since we initially recorded the goodwill, there can be no assurance that our future evaluations of our existing goodwill or goodwill we may acquire in the future will not result in findings of impairment and related write-downs, which could adversely affect our business, financial condition and results of operations.
We may be adversely affected by recent changes in U.S. tax laws.
The tax laws applicable to our business activities may change over time. Legislative initiatives, including initiatives currently under discussion, may impact our results of operations by increasing the corporate income tax rate applicable to our business or by enacting other changes that increase our effective tax rate.
The enactment of the Tax Cuts and Jobs Act, or TCJA, on December 22, 2017 made significant changes to the Internal Revenue Code, many of which are highly complex and may require interpretations and implementing regulations. As a result of the TCJA’s reduction of the corporate income tax rate from 35% to 21%, we recorded a one-time, non-cash
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charge to income tax provision of $1.7 million during the fourth quarter of 2017 to reduce the value of our net deferred tax assets. See “
The TCJA includes a number of provisions that will have an impact on the banking industry, borrowers and the market for residential real estate. These changes include: (i) a lower limit on the deductibility of mortgage interest on single-family residential mortgage loans, (ii) the elimination of interest deductions for home equity loans, (iii) a limitation on the deductibility of business interest expense, and (iv) a limitation on the deductibility of property taxes and state and local income taxes. The TCJA may have an adverse effect on the market for and the valuation of residential properties, as well as on the demand for such loans in the future, and could make it harder for borrowers to make their loan payments. The value of the properties securing loans in our loan portfolio may be adversely impacted as a result of the changing economics of home ownership. Such an impact could require an increase in our provision for loan losses, which would reduce our profitability and could materially adversely affect our business, financial condition and results of operations.
Risks Related to the Regulation of Our Industry
The ongoing implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, could adversely affect our business, financial condition, and results of operations.
On July 21, 2010, the Dodd-Frank Act was signed into law, and the process of implementation is ongoing. The Dodd-Frank Act imposes significant regulatory and compliance changes on many industries, including ours. There remains significant uncertainty surrounding the manner in which the provisions of the Dodd-Frank Act will ultimately be implemented by the various regulatory agencies and the full extent of the impact of the requirements on our operations is unclear, especially in light of the Trump administration’s executive order calling for a full review of the Dodd-Frank Act and the regulations promulgated under it. The changes resulting from the Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our business practices, require the development of new compliance infrastructure, impose upon us more stringent capital, liquidity and leverage requirements or otherwise adversely affect our business. These changes may also require us to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements. Failure to comply with the new requirements or with any future changes in laws or regulations could adversely affect our business, financial condition and results of operations.
On May 24, 2018, the EGRRCPA became law. Among other things, the EGRRCPA changes certain of the regulatory requirements of the Dodd-Frank Act and includes provisions intended to relieve the regulatory burden on community banks. We cannot currently predict the impact of this legislation on us. Any future legislative changes could have a material impact on our profitability, the value of assets held for investment or the value of collateral for loans. Future legislative changes could also require changes to business practices and potentially expose us to additional costs, liabilities, enforcement action and reputational risk.
We operate in a highly regulated environment and the laws and regulations that govern our operations, corporate governance, executive compensation and accounting principles, or changes in them, or our failure to comply with them, could adversely affect us.
Banking is highly regulated under federal and state law. As such, we are subject to extensive regulation, supervision and legal requirements that govern almost all aspects of our operations. These laws and regulations are not intended to protect our shareholders. Rather, these laws and regulations are intended to protect customers, depositors, the Deposit Insurance Fund and the overall financial stability of the United States. These laws and regulations, among other matters, prescribe minimum capital requirements, impose limitations on the business activities in which we can engage, limit the dividend or distributions that the Bank can pay to us, restrict the ability of institutions to guarantee our debt and impose certain specific accounting requirements on us that may be more restrictive and may result in greater or earlier charges to earnings or reductions in our capital than GAAP would require. Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose additional operating costs. Our failure to comply with these laws and regulations, even if the failure follows good faith effort or reflects a difference in interpretation, could subject us to restrictions on our business activities, enforcement actions and fines and other penalties, any of which could adversely affect our results of operations, regulatory capital levels and the price of our securities. Further, any new laws, rules and regulations, such as the Dodd-Frank Act, could make compliance more difficult or expensive or otherwise adversely affect our business, financial condition and results of operations.
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Federal banking agencies periodically conduct examinations of our business, including compliance with laws and regulations, and our failure to comply with any supervisory actions to which we are or become subject as a result of such examinations could adversely affect us.
As part of the bank regulatory process, the OCC and the Board of Governors of the Federal Reserve System, or Federal Reserve, periodically conduct examinations of our business, including compliance with laws and regulations. If, as a result of an examination, one of these federal banking agencies were to determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, asset sensitivity, risk management or other aspects of any of our operations have become unsatisfactory, or that our Company, the Bank or their respective management were in violation of any law or regulation, it may take a number of different remedial actions as it deems appropriate. These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative actions to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital levels, to restrict our growth, to assess civil monetary penalties against us, the Bank or their respective officers or directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate the Bank’s deposit insurance. If we become subject to such regulatory actions, our business, financial condition, results of operations and reputation could be adversely affected.
We recently becameare subject to more stringent capital requirements, which may result in lower returns on equity, require the raising of additional capital, limit our ability to repurchase shares or pay dividends and discretionary bonuses, or result in regulatory action.
The Dodd-Frank Act requiresrequired the federal banking agencies to establish stricter risk-based capital requirements and leverage limits to apply to banks and bank and savings and loan holding companies. In July 2013, the federal banking agencies published new capital rules,companies, referred to herein as the Basel III capital rules, which revised their risk-based and leverage capital requirements and their method for calculating risk-weighted assets. The Basel III capital rules apply to all bank holding companies with $1.0 billion or more in consolidated assets and all banks regardless of size. The Basel III capital rules became effective as applied to us on January 1, 2015, with a phase-in period for the new capital conservation buffer that generally extends from January 1, 2015 through January 1, 2019.rules. See the section in Item 1 of this Annual Report on Form 10-K captioned “
As a result of the enactment of the Basel III capital rules, we became subject to increased required capital levels. Our inability to comply with these more stringent capital requirements could, among other things, result in lower returns on equity; require the raising of additional capital; limit our ability to repurchase shares or pay dividends and discretionary bonuses; or result in regulatory actions, any of which could adversely affect our business, financial condition and results of operation.
Many of our new activities and expansion plans require regulatory approvals, and failure to obtain them may restrict our growth.
We intend to complement and expand our business by pursuing strategic acquisitions of financial institutions and other complementary businesses. Generally, we must receive federal regulatory approval before we can acquire an FDIC-insured depository institution or related business. In determining whether to approve a proposed acquisition, federal banking regulators will consider, among other factors, the effect of the acquisition on competition, our financial condition, our future prospects, and the impact of the proposal on U.S. financial stability. The regulators also review current and projected capital ratios and levels, the competence, experience and integrity of management and its record of compliance with laws and regulations, the convenience and needs of the communities to be served (including the acquiring institution’s record of compliance under the Community Reinvestment Act, or the CRA) and the effectiveness of the acquiring institution in combating money laundering activities. Such regulatory approvals may not be granted on terms that are acceptable to us, or at all. We may also be required to sell banking locations as a condition to receiving regulatory approval, which condition may not be acceptable to us or, if acceptable to us, may reduce the benefit of any acquisition.
In addition to the acquisition of existing financial institutions, as opportunities arise, we plan to continue
de novo branching as a part of our expansion strategy. De novo branching and acquisitions carry with them numerous risks, including the inability to obtain all required regulatory approvals. The failure to obtain these regulatory approvals for potential future strategic acquisitions and de novo banking locations could impact our business plans and restrict our growth.Financial institutions, such as the Bank, face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.
The Bank Secrecy Act, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, or the USA PATRIOT Act, and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and file suspicious
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activity and currency transaction reports as appropriate. The Financial Crimes Enforcement Network, established by the U.S. Department of the Treasury, or the Treasury Department, to administer the Bank Secrecy Act, is authorized to impose significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration and the Internal Revenue Service. There is also increased scrutiny of compliance with the sanctions programs and rules administered and enforced by the Treasury Department’s Office of Foreign Assets Control.
In order to comply with regulations, guidelines and examination procedures in this area, we have dedicated significant resources to our anti-money laundering program. If our policies, procedures and systems are deemed deficient, we could be subject to liability, including fines and regulatory actions such as restrictions on our ability to
We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.
The CRA, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. The Consumer Financial Protection Bureau, or CFPB, the U.S. Department of Justice and other federal agencies are responsible for enforcing these laws and regulations. The CFPB was created under the Dodd-Frank Act to centralize responsibility for consumer financial protection with broad rulemaking authority to administer and carry out the purposes and objectives of federal consumer financial laws with respect to all financial institutions that offer financial products and services to consumers. The CFPB is also authorized to prescribe rules applicable to any covered person or service provider, identifying and prohibiting acts or practices that are “unfair, deceptive, or abusive” in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service. The ongoing broad rulemaking powers of the CFPB have potential to have a significant impact on the operations of financial institutions offering consumer financial products or services. The CFPB has indicated that it may propose new rules on overdrafts and other consumer financial products or services, which could have an adverse effect on our business, financial condition and results of operations if any such rules limit our ability to provide such financial products or services.
A successful regulatory challenge to an institution’s performance under the CRA, fair lending or consumer lending laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion, and restrictions on entering new business lines. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have an adverse effect on our business, financial condition and results of operations.
Increases in FDIC insurance premiums could adversely affect our earnings and results of operations.
We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance. As a result of economic conditions and the enactment of the Dodd-Frank Act, the FDIC has in recent years increased deposit insurance assessment rates, which in turn raised deposit premiums for many insured depository institutions. In 2010, the FDIC increased the Deposit Insurance Fund’s target reserve ratio to 2.0% of insured deposits following the Dodd-Frank Act’s elimination of the 1.5% cap on the insurance fund’s reserve ratio, and the FDIC as put in place a restoration plan to restore the Deposit Insurance Fund to its 1.35% minimum reserve ratio managed by the Dodd-Frank Act by September 30, 2020. If recent increases in premiums are insufficient for the Deposit Insurance Fund to meet its funding requirements, further special assessments or increases in deposit insurance premiums may be required. Further, if there are additional financial institution failures that affect the Deposit Insurance Fund, we may be required to pay higher FDIC premiums. Our FDIC insurance related costs were $671,000$821,000 for the year ended December 31, 2017,2020, compared to $1.2 million$173,000 for the year ended December 31, 2016,2019, reflecting the receipt and $743,000 for the year ended December 31, 2015.application of a credit in 2019 that was not received in 2020. Any future additional assessments, increases or required prepayments in FDIC insurance premiums could adversely affect our earnings and results of operations.
The Federal Reserve may require us to commit capital resources to support the Bank.
The Federal Reserve requires a bank holding company to act as a source of financial and managerial strength to its subsidiary banks and to commit resources to support its subsidiary banks. Under the “source of strength” doctrine that was codified by the Dodd-Frank Act, the Federal Reserve may require a bank holding company to make capital injections into a troubled subsidiary bank at times when the bank holding company may not be inclined to do so and may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit resources to such a subsidiary bank. Accordingly, we could be required to provide financial assistance to the Bank if it experiences financial distress.
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A capital injection may be required at a time when our resources are limited, and we may be required to borrow the funds or raise capital to make the required capital injection. Any loan by a bank holding company to its subsidiary bank is subordinate in right with payment to deposits and certain other indebtedness of such subsidiary bank. In the event of a bank holding company’s bankruptcy, the bankruptcy trustee will assume any commitment by the holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank. Moreover,
We could be adversely affected by the soundness of other financial institutions.
Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. We have exposure to many different industries and counterparties, and routinely execute transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks and other institutional clients. Many of these transactions expose us to credit risk in the event of a default by a counterparty or client. In addition, our credit risk may be exacerbated when our collateral cannot be foreclosed upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due. Any such losses could adversely affect our business, financial condition and results of operations.
Monetary policies and regulations of the Federal Reserve could adversely affect our business, financial condition and results of operations.
In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the Federal Reserve. An important function of the Federal Reserve is to regulate the U.S. money supply and credit conditions. Among the instruments used by the Federal Reserve to implement these objectives are open market purchases and sales of securities by the Federal Reserve, adjustments of both the discount rate and the federal funds rate and changes in reserve requirements against bank deposits. These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits. Their use also affects interest rates charged on loans or paid on deposits.
The monetary policies and regulations of the Federal Reserve have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. Although we cannot determine the effects of such policies on us at this time, such policies could adversely affect our business, financial condition and results of operations.
We are subject to commercial real estate lending guidance issued by the federal banking regulators that impacts our operations and capital requirements.
The federal banking regulators have issued guidance regarding concentrations in commercial real estate lending directed at institutions that have particularly high concentrations of commercial real estate loans within their lending portfolios. This guidance suggests that institutions whose commercial real estate loans exceed certain percentages of capital should implement heightened risk management practices appropriate to their concentration risk and may be required to maintain higher capital ratios than institutions with lower concentrations in commercial real estate lending. Based on our commercial real estate concentration as of December 31, 2017,2020, we believe that we are operating within the guidelines. However, increases in our commercial real estate lending, particularly as we expand into metropolitans markets and make more of these loans, could subject us to additional supervisory analysis. We cannot guarantee that any risk management practices we implement will be effective to prevent losses relating to our commercial real estate portfolio. Management has implemented controls to monitor our commercial real estate lending concentrations, but we cannot predict the extent to which this guidance will impact our operations or capital requirements.
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Risks Related to an Investment in Our Common Stock
The market price of our common stock may be subject to substantial fluctuations, which may make it difficult for you to sell your shares at the volume, prices and times desired.
The market price of our common stock may be highly volatile, which may make it difficult for you to resell your shares at the volume, prices and times desired. There are many factors that may affect the market price and trading volume of our common stock, including, without limitation:
• | actual or anticipated fluctuations in our operating results, financial condition or asset quality; |
• | changes in economic or business conditions; |
• | the effects of, and changes in, trade, monetary and fiscal policies, including the interest rate policies of the Federal Reserve; |
• | publication of research reports about us, our competitors, or the financial services industry generally, or changes in, or failure to meet, securities analysts’ estimates of our financial and operating performance, or lack of research reports by industry analysts or ceasing of coverage; |
• | operating and stock price performance of companies that investors deemed comparable to us; |
• | additional or anticipated sales of our common stock or other securities by us or our existing shareholders; |
• | additions or departures of key personnel; |
• | perceptions in the marketplace regarding our competitors or us, including the perception that investment in Texas is unattractive or less attractive during periods of low oil prices; |
• | significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving our competitors or us; |
• | other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services; and |
• | other news, announcements or disclosures (whether by us or others) related to us, our competitors, our primary markets or the financial services industry. |
The stock market and, in particular, the market for financial institution stocks have experienced substantial fluctuations in recent years, which in many cases have been unrelated to the operating performance and prospects of particular companies. In addition, significant fluctuations in the trading volume in our common stock may cause significant price variations to occur. Increased market volatility may materially and adversely affect the market price of our common stock, which could make it difficult to sell your shares at the volume, prices and times desired.
The market price of our common stock could decline significantly due to actual or anticipated issuances or sales of our common stock in the future.
We may issue shares of our common stock or other securities from time to time as consideration for future acquisitions and investments and pursuant to compensation and incentive plans. If any such acquisition or investment is significant, the number of shares of our common stock, or the number or aggregate principal amount, as the case may be, of other securities that we may issue may in turn be substantial. We may also grant registration rights covering those shares of our common stock or other securities in connection with any such acquisitions and investments.
We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances and sales of our common stock will have on the market price of our common stock. Sales of substantial amounts of our common stock (including shares of our common stock issued in connection with an acquisition or under a compensation or incentive plan), or the perception that such sales could occur, may adversely affect prevailing market prices for our common stock and could impair our ability to raise capital through future sales of our securities.
Securities analysts may not initiate or continue coverage on us.
The trading market for our common stock depends, in part, on the research and reports that securities analysts publish about us and our business. We do not have any control over these securities analysts, and they may not cover us. If one or more of these analysts cease to cover us or fail to publish regular reports on us, we could lose visibility in the
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financial markets, which could cause the price or trading volume of our common stock to decline. If we are covered by securities analysts and are the subject of an unfavorable report, the price of our common stock may decline.
Our management and board of directors have significant control over our business.
As of December 31, 2017,2020, our Company directors, Bankonly directors and named executive officers beneficially owned an aggregate of 3,068,7632,204,578 shares, or approximately 27.8%19.9%, of our issued and outstanding shares of common stock, including 316,432316,349 shares that are held by our KSOP and allocated to the accounts of our named executive officers. As of December 31, 2017,2020, our KSOP owned an aggregate of 1,314,2771,225,828 shares, or approximately 11.9%11.2% of our issued and outstanding shares. A committee consisting of four independent directors of the Company, which we refer to herein as the KSOP Committee, currently serves as trustee of the KSOP. Each KSOP participant will have the right to vote the shares allocated to such participant’s account on all matters requiring a vote of our shareholders, but the KSOP committee, as trustee of the KSOP, retains sole voting power over all shares held by the KSOP that are not allocated to participants’ accounts and all shares for which they have received no voting instructions from the
As a result of their significant control over our business, our management and board of directors may be able to significantly affect the outcome of the election of directors and the potential outcome of other matters submitted to a vote of our shareholders, such as mergers, the sale of substantially all of our assets and other extraordinary corporate matters. The interests of these insiders could conflict with the interests of our other shareholders, including you.
The holders of our existing debt obligations, as well as debt obligations that may be outstanding in the future, will have priority over our common stock with respect to payment in the event of liquidation, dissolution or winding up and with respect to the payment of interest.
In the event of any liquidation, dissolution or winding up of the Company, our common stock would rank below all claims of debt holders against us. As of December 31, 2017,2020, we had a senior, unsecured line of credit with an available balance of $25.0 million, but no amounts advanced, wewith $12.0 million advanced. We also had $3.5$9.5 million of subordinated debt obligations and approximately $10.3 million of junior subordinated debentures issued to statutory trusts that, in turn, issued $10.0 million of trust preferred securities. Payments of the principal and interest on the trust preferred securities are conditionally guaranteed by us. Our debt obligations are senior to our shares of common stock. As a result, we must make payments on our debt obligations before any dividends can be paid on our common stock. In the event of our bankruptcy, dissolution or liquidation, the holders of ourthese existing and any future debt obligations must be satisfied in full before any distributions can be made to the holders of our common stock. We have the right to defer distributions on our junior subordinated debentures (and the related trust preferred securities) for up to five years, during which time no dividends may be paid to holders of our common stock. To the extent that we issue additional debt obligations or junior subordinated debentures, the additional debt obligations or additional junior subordinated debentures will be of equal rank with, or senior to, our existing debt obligations and senior to our shares of common stock.
We may issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or could otherwise adversely affect holders of our common stock, which could depress the price of our common stock.
Our amended and restated certificate of formation authorizes us to issue up to 15,000,000 shares of one or more series of preferred stock. Our board of directors has the authority to determine the preferences, limitations and relative rights of shares of preferred stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by our shareholders. Our preferred stock could be issued with voting, liquidation, dividend and other rights superior to the rights of our common stock. The potential issuance of preferred stock may delay or prevent a change in control of us, discouraging bids for our common stock at a premium over the market price, and materially adversely affect the market price and the voting and other rights of the holders of our common stock.
We are an emerging growth company, and the reduced regulatory and reporting requirements applicable to emerging growth companies may make our common stock less attractive to investors.
We are an emerging growth company, as defined in the JOBS Act. For as long as we continue to be an emerging growth company we may to take advantage of reduced regulatory and reporting requirements that are otherwise generally applicable to public companies. These include, without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced financial reporting requirements, reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments. The JOBS Act also permits an emerging growth company such as us to take advantage of an extended transition period to comply with new or revised accounting
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standards applicable to public companies. However, we have irrevocably “opted out” of this provision, and we will comply with new or revised accounting standards to the same extent that compliance is required for non-emerging growth companies.
We may take advantage of these provisions for up to five years, unless we earlier cease to be an emerging growth company, which would occur if our annual gross revenues exceed $1.0 billion, if we issue more than $1.0 billion in non-convertible debt in a three-year period or if the market value of our common stock held by non-affiliates exceeds $700.0 million as of any June 30, in which case we would no longer be an emerging growth company as of the following December 31. Investors may find our common stock less attractive because we intend to rely on certain of these exemptions, which may result in a less active trading market and increased volatility in our stock price.
We are dependent upon the Bank for cash flow, and the Bank’s ability to make cash distributions is restricted.
Our primary tangible asset is Guaranty Bank & Trust. As such, we dependthe Company depends upon the Bank for cash distributions (through dividends on the Bank’s common stock) that we usethe Company uses to pay ourits operating expenses, satisfy ourits obligations (including ourits junior subordinated debentures and our other debt obligations) and to pay dividends on ourthe Company’s common stock. Federal statutes, regulations and policies restrict the Bank’s ability to make cash distributions to us.the Company. These statutes and regulations require, among other things, that the Bank maintain certain levels of capital in order to pay a dividend. Further, the OCC has the ability to restrict the Bank’s payment of dividends by supervisory action. If the Bank is unable to pay dividends to us,the Company, we will not be able to satisfy our obligations or pay dividends on our common stock.
Our dividend policy may change without notice, and our future ability to pay dividends is subject to restrictions.
We anticipate that dividends will be declared and paid in the month following the end of each calendar quarter, and we anticipate paying a quarterly dividend on our common stock in an amount equal to approximately 25.0% to 30.0% of our net income for the immediately preceding quarter. However, holders of our common stock are entitled to receive only such cash dividends as our board of directors may declare out of funds legally available for such payments. Any declaration and payment of dividends on common stock will depend upon the ability of the Bank to make cash distributions to the Company, our earnings and financial condition, liquidity and capital requirements, the general economic and regulatory climate, our ability to service any equity or debt obligations senior to the common stock and other factors deemed relevant by our board of directors. Furthermore, consistent with our strategic plans, growth initiatives, capital availability, projected liquidity needs and other factors, we have made, and will continue to make, capital management decisions and policies that could adversely affect the amount of dividends, if any, paid to our common shareholders.
The Federal Reserve has indicated that bank holding companies should carefully review their dividend policy in relation to the organization’s overall asset quality, current and prospective earnings and level, composition and quality of capital. The guidance provides that we inform and consult with the Federal Reserve prior to declaring and paying a dividend that exceeds earnings for the period for which the dividend is being paid or that could result in an adverse change to our capital structure, including interest on the junior subordinated debentures underlying our trust preferred securities and our other debt obligations. If required payments on our outstanding junior subordinated debentures, held by our unconsolidated subsidiary trusts, or our other debt obligations, are not made or are deferred, or dividends on any preferred stock we may issue are not paid, we will be prohibited from paying dividends on our common stock.
Our corporate organizational documents and provisions of federal and state law to which we are subject contain certain provisions that could have an anti-takeover effect and may delay, make more difficult or prevent an attempted acquisition that you may favor or an attempted replacement of our board of directors or management.
Our certificate of formation and our bylaws (each as amended and restated) may have an anti-takeover effect and may delay, discourage or prevent an attempted acquisition or change of control or a replacement of our board of directors or management. Our governing documents include provisions that:
• | empower our board of directors, without shareholder approval, to issue our preferred stock, the terms of which, including voting power, are to be set by our board of directors; |
• | divide our board of directors into three classes serving staggered three-year terms; |
• | provide that directors may only be removed from office for cause and only upon a majority shareholder vote; |
• | eliminate cumulative voting in elections of directors; |
• | permit our board of directors to alter, amend or repeal our amended and restated bylaws or to adopt new bylaws; |
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• | require the request of holders of at least 50.0% of the outstanding shares of our capital stock entitled to vote at a meeting to call a special shareholders’ meeting; |
• | prohibit shareholder action by less than unanimous written consent, thereby requiring virtually all actions to be taken at a meeting of the shareholders; |
• | require shareholders that wish to bring business before annual or special meetings of shareholders, or to nominate candidates for election as directors at our annual meeting of shareholders, to provide timely notice of their intent in writing; and |
• | enable our board of directors to increase, between annual meetings, the number of persons serving as directors and to fill the vacancies created as a result of the increase by a majority vote of the directors present at a meeting of directors. |
In addition, certain provisions of Texas law, including a provision which restricts certain business combinations between a Texas corporation and certain affiliated shareholders, may delay, discourage or prevent an attempted acquisition or change in control. Furthermore, banking laws impose notice, approval, and ongoing regulatory requirements on any shareholder or other party that seeks to acquire direct or indirect “control” of an FDIC-insured depository institution or its holding company. These laws include the Bank Holding Company Act of 1956, as amended, or the BHC Act, and the Change in Bank Control Act, or the CBCA. These laws could delay or prevent an acquisition.
Furthermore, our amended and restated certificate of formation provides that the state courts located in Titus County, Texas, the county in which our legacy headquarters in Mount Pleasant lie, will be the exclusive forum for: (a) any actual or purported derivative action or proceeding brought on our behalf, (b) any action asserting a claim of breach of fiduciary duty by any of our directors or officers, (c) any action asserting a claim against us or our directors or officers arising pursuant to the TBOC, our certificate of formation, or our bylaws; or (d) any action asserting a claim against us or our officers or directors that is governed by the internal affairs doctrine. By becoming a shareholder of our Company, you will be deemed to have notice of and have consented to the provisions of our amended and restated certificate of formation related to choice of forum. The choice of forum provision in our amended and restated certificate of formation may limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of formation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, operating results, and financial condition.
An investment in our common stock is not an insured deposit and is subject to risk of loss.
Any shares of our common stock you purchase will not be savings accounts, deposits or other obligations of any of our bank or non-bank subsidiaries and will not be insured or guaranteed by the FDIC or any other government agency. Your investment will be subject to investment risk, and you must be capable of affording the loss of your entire investment.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The Bank currently operates 2831 banking locations, all of which are located in Texas. TheOur principal executive office of the Bank is located at 201 South Jefferson Avenue, Mount Pleasant,16475 Dallas Parkway, Suite 600, Addison, Texas 75455.75001. The Bank currently operates banking locations in the following Texas locations: Atlanta, Austin (two locations), Bogata, Bryan, College Station (two locations), Commerce, Conroe, Dallas (two locations), Denton (two locations), Fort Worth, Hallsville, Houston (three locations), Longview, Mount Pleasant (two locations), Mount Vernon, New Boston, Paris (two locations), Pittsburg, Rockwall, Royse City, Sulphur Springs, and Texarkana (four(three locations).
As of December 31, 2017,2020, we owned 21 of our branch locations, had one location in which we owned the building and had a long-term land lease on the real property associated with the branch, and leased the remaining sevennine locations. The terms of our leases generally range from one to 15 years and give us the option to renew for subsequent terms of equal duration or otherwise extend the lease term subject to price adjustment based on market conditions at the time of renewal. We believe that the sevennine leases to which we are subject are generally on terms consistent with prevailing market terms, and none of the leases are with our directors, officers, beneficial owners of more than 5% of our voting securities or any affiliates of the foregoing. We believe that our facilities are in good condition and are adequate to meet our operating needs for the foreseeable future.
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ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time subject to claims and litigation arising in the ordinary course of business. These claims and litigation may include, among other things, allegations of violation of banking and other applicable regulations, competition law, labor laws and consumer protection laws, as well as claims or litigation relating to intellectual property, securities, breach of contract and tort. The Company intends to defend itself vigorously against any pending or future claims and litigation.
At this time, in the opinion of management, the likelihood is remote that the impact of such proceedings, either individually or in the aggregate, would have a material adverse effect on the Company combined results of operations, financial condition or cash flows. However, one or more unfavorable outcomes in any claim or litigation against the
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information for Common Stock
Shares of our common stock are traded on the NASDAQ Global Select Market under the symbol “GNTY.” Our shares have been traded on the NASDAQ Global Select Market since May 9, 2017. Prior to that date, there was no public trading market for our common stock. The following table presents the range of high and low sales price per share reported on the NASDAQ Global Select Market for the period indicated.
| 2017 | |||
| High | Low | ||
| Second Quarter | $36.38 | $29.00 | |
| Third Quarter | 33.16 | 28.27 | |
| Fourth Quarter | 31.70 | 28.00 | |
As of March 14, 2018,10, 2021, there were 270361 holders of record of our common stock.
Dividend Policy
See "
Item 8. Financial Statements and Supplementary Data—Quarterly Results of Operations" for the frequency and amount of cash dividends paid by us. Also, see "Item 1. Business—Regulation and Supervision—Guaranty Bancshares, Inc.—Regulatory Restrictions on Dividends” for restrictions on our present or future ability to pay dividends, particularly those restrictions arising under federal and state banking laws.Unregistered Sales of Equity Securities
None.
Equity Compensation Plan Information
See “
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”43
Stock Performance Graph
The following table and graph compares the cumulative total shareholder return on our common stock to the cumulative total return of the Russell 3000S&P 500 Index and the SNL Bank Index for banks with $1.0 billion to $5.0 billion in total assets for the period beginning on May 9, 2017, the first day of trading of our common stock on the NASDAQ Global Select Market through December 31, 2017.2020. The following assumes $100 invested on May 9, 2017 in our common stock at our initial public offering price of $27.00 per share, otherwise reflects our stock and the Russell 3000S&P 500 and SNL Bank $1.0 to $5.0 Billion Index values as of close of trading, and assumes the reinvestment of dividends, if any. The historical stock price performance for our common stock shown on the graph below is not necessarily indicative of future stock performance.
|
| May 9, 2017 |
|
| December 31, 2017 |
|
| December 31, 2018 |
|
| December 31, 2019 |
|
| December 31, 2020 |
| |||||
Guaranty Bancshares, Inc. |
| $ | 100.00 |
|
| $ | 114.98 |
|
| $ | 114.01 |
|
| $ | 128.63 |
|
| $ | 120.79 |
|
S&P 500 Index |
|
| 100.00 |
|
|
| 113.05 |
|
|
| 108.09 |
|
|
| 142.12 |
|
|
| 168.27 |
|
SNL Bank $1B - $5B Index |
|
| 100.00 |
|
|
| 107.19 |
|
|
| 93.91 |
|
|
| 114.16 |
|
|
| 97.01 |
|
| May 9, 2017 | June 30, 2017 | September 30, 2017 | December 31, 2017 | ||||||||||||
| Guaranty Bancshares, Inc. | $ | 100.00 | $ | 118.81 | $ | 119.44 | $ | 114.98 | |||||||
| S&P 500 Index | $ | 100.00 | $ | 101.46 | $ | 106.00 | $ | 113.05 | |||||||
| SNL Bank $1B - $5B Index | $ | 100.00 | $ | 100.75 | $ | 107.52 | $ | 107.19 | |||||||
Source: S&P Global Market Intelligence
44
Stock Repurchases
In June 2019, the Company announced the adoption of oura new stock repurchase program, which authorized the repurchase of up to 500,000 shares of the Company common stock, or approximately 4.0% of the outstanding common shares at that time. On March 13, 2020, the Company announced the termination of that stock repurchase program and the adoption of a new stock repurchase program that authorized the repurchase of up to 1,000,000 shares of the Company’s common stock. The stock repurchase program will be effective until the earlier of March 13, 2022, or the date all shares authorized for repurchase under the program have been repurchased, unless shortened or extended by the board of directors. The repurchase plan permits shares to be acquired from time to time in the open market or negotiated transactions at prices management considers to be attractive and in the best interest of both Guaranty and its shareholders, subject to compliance with applicable laws and regulations, general market and economic conditions, the financial and regulatory condition of Guaranty, liquidity and other factors. All repurchases shown in the table below were made bypursuant to these stock repurchase programs in open market purchases, privately negotiated transactions or on behalf of us or any “affiliated purchaser” as defined in Rule 10b-18(a)(3) under the Exchange Act during the year ended December 31, 2017. There is currently no authorization to repurchase shares of outstanding common stock.other means.
Period |
| Total Number of Shares Purchased |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
| ||||
October, 2020 |
|
| 10,800 |
|
|
| 27.40 |
|
|
| 10,800 |
|
|
| 647,647 |
|
November, 2020 |
|
| 70,424 |
|
|
| 29.53 |
|
|
| 70,424 |
|
|
| 577,223 |
|
December, 2020 |
|
| 14,700 |
|
|
| 29.81 |
|
|
| 14,700 |
|
|
| 562,523 |
|
Total |
|
| 95,924 |
|
| $ | 29.33 |
|
|
| 95,924 |
|
|
|
|
|
ITEM 6. SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth certain of our summary historical consolidated financial information for each of the periods indicated. The historical information as of and for the years ended December 31, 20172020 and 20162019 has been derived from our audited consolidated financial statements included elsewhere in this Form 10-K, and the selected historical consolidated financial information as of and for the years ended December 31, 2015, 20142018, 2017 and 20132016 has been derived from our audited consolidated financial statements not appearing in this Form 10-K. The historical results set forth below are not necessarily indicative of our future performance.
45
You should read the following together with the sections entitled “
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our audited consolidated financial statements and the related notes included elsewhere in this Form 10-K.(Dollars in Thousands, except Per Share Amounts) |
| |||||||||||||||||||
|
| As of December 31, |
| |||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
| |||||
Selected Period End Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 2,740,832 |
|
| $ | 2,318,444 |
|
| $ | 2,266,970 |
|
| $ | 1,962,624 |
|
| $ | 1,828,336 |
|
Cash and cash equivalents |
|
| 351,791 |
|
|
| 90,714 |
|
|
| 71,510 |
|
|
| 91,428 |
|
|
| 127,543 |
|
Securities available for sale |
|
| 380,795 |
|
|
| 212,716 |
|
|
| 232,975 |
|
|
| 232,372 |
|
|
| 156,925 |
|
Securities held to maturity |
|
| — |
|
|
| 155,458 |
|
|
| 163,164 |
|
|
| 174,684 |
|
|
| 189,371 |
|
Loans held for sale |
|
| 5,542 |
|
|
| 2,368 |
|
|
| 1,795 |
|
|
| 1,896 |
|
|
| 2,563 |
|
Loans held for investment |
|
| 1,866,819 |
|
|
| 1,706,395 |
|
|
| 1,659,535 |
|
|
| 1,359,544 |
|
|
| 1,243,925 |
|
Allowance for loan losses |
|
| 33,619 |
|
|
| 16,202 |
|
|
| 14,651 |
|
|
| 12,859 |
|
|
| 11,484 |
|
Goodwill |
|
| 32,160 |
|
|
| 32,160 |
|
|
| 32,160 |
|
|
| 18,742 |
|
|
| 18,742 |
|
Core deposit intangibles, net |
|
| 2,999 |
|
|
| 3,853 |
|
|
| 4,706 |
|
|
| 2,724 |
|
|
| 3,308 |
|
Noninterest-bearing deposits |
|
| 779,740 |
|
|
| 525,865 |
|
|
| 489,789 |
|
|
| 410,009 |
|
|
| 358,752 |
|
Interest-bearing deposits |
|
| 1,506,650 |
|
|
| 1,430,939 |
|
|
| 1,381,691 |
|
|
| 1,266,311 |
|
|
| 1,218,039 |
|
Total deposits |
|
| 2,286,390 |
|
|
| 1,956,804 |
|
|
| 1,871,480 |
|
|
| 1,676,320 |
|
|
| 1,576,791 |
|
Federal Home Loan Bank advances |
|
| 109,101 |
|
|
| 55,118 |
|
|
| 115,136 |
|
|
| 45,153 |
|
|
| 55,170 |
|
Subordinated debentures |
|
| 19,810 |
|
|
| 10,810 |
|
|
| 12,810 |
|
|
| 13,810 |
|
|
| 19,310 |
|
Line of credit |
|
| 12,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 18,286 |
|
KSOP-owned shares |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 31,661 |
|
Total shareholders’ equity less KSOP-owned shares |
|
| 272,643 |
|
|
| 261,551 |
|
|
| 244,583 |
|
|
| 207,345 |
|
|
| 110,253 |
|
Pro forma total shareholders’ equity(1) |
|
| 272,643 |
|
|
| 261,551 |
|
|
| 244,583 |
|
|
| 207,345 |
|
|
| 141,914 |
|
|
| For the Years Ended December 31, |
| |||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
| |||||
Selected Income Statement Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
| $ | 89,982 |
|
| $ | 78,870 |
|
| $ | 68,916 |
|
| $ | 59,630 |
|
| $ | 53,840 |
|
Provision for loan losses |
|
| 13,200 |
|
|
| 1,250 |
|
|
| 2,250 |
|
|
| 2,850 |
|
|
| 3,640 |
|
Net interest income after provision for loan losses |
|
| 76,782 |
|
|
| 77,620 |
|
|
| 66,666 |
|
|
| 56,780 |
|
|
| 50,200 |
|
Noninterest income |
|
| 23,037 |
|
|
| 16,962 |
|
|
| 15,303 |
|
|
| 14,279 |
|
|
| 13,016 |
|
Noninterest expense |
|
| 66,522 |
|
|
| 62,525 |
|
|
| 56,774 |
|
|
| 48,382 |
|
|
| 46,380 |
|
Net realized (loss) gain on sale of securities |
|
| — |
|
|
| (22 | ) |
|
| (50 | ) |
|
| 167 |
|
|
| 82 |
|
Income before income tax |
|
| 33,297 |
|
|
| 32,057 |
|
|
| 25,195 |
|
|
| 22,677 |
|
|
| 16,836 |
|
Income tax expense |
|
| 5,895 |
|
|
| 5,778 |
|
|
| 4,599 |
|
|
| 8,238 |
|
|
| 4,715 |
|
Net earnings |
|
| 27,402 |
|
|
| 26,279 |
|
|
| 20,596 |
|
|
| 14,439 |
|
|
| 12,121 |
|
Dividends paid to common shareholders |
|
| 8,599 |
|
|
| 8,128 |
|
|
| 7,031 |
|
|
| 5,562 |
|
|
| 4,615 |
|
|
| As of and for the Years Ended December 31, |
| |||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
| |||||
Per Share Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share, basic |
| $ | 2.47 |
|
| $ | 2.26 |
|
| $ | 1.78 |
|
| $ | 1.41 |
|
| $ | 1.35 |
|
Earnings per common share, diluted |
|
| 2.46 |
|
|
| 2.25 |
|
|
| 1.77 |
|
|
| 1.40 |
|
|
| 1.35 |
|
Book value per common share(2) |
|
| 24.93 |
|
|
| 22.65 |
|
|
| 20.68 |
|
|
| 18.75 |
|
|
| 16.22 |
|
Tangible book value per common share(2)(3) |
|
| 21.72 |
|
|
| 19.53 |
|
|
| 17.56 |
|
|
| 16.81 |
|
|
| 13.70 |
|
Weighted average common shares outstanding, basic |
|
| 11,108,564 |
|
|
| 11,638,897 |
|
|
| 11,562,826 |
|
|
| 10,230,840 |
|
|
| 8,968,262 |
|
Weighted average common shares outstanding, diluted |
|
| 11,141,345 |
|
|
| 11,705,099 |
|
|
| 11,653,766 |
|
|
| 10,313,369 |
|
|
| 8,976,328 |
|
|
| As of and for the Years Ended December 31, |
| |||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
| |||||
Summary Performance Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets(4)(5) |
|
| 1.07 | % |
|
| 1.13 | % |
|
| 0.97 | % |
|
| 0.76 | % |
|
| 0.68 | % |
Return on average equity(4)(5) |
|
| 10.39 |
|
|
| 10.37 |
|
|
| 9.03 |
|
|
| 7.78 |
|
|
| 8.34 |
|
Net interest margin(6) |
|
| 3.74 |
|
|
| 3.68 |
|
|
| 3.49 |
|
|
| 3.38 |
|
|
| 3.27 |
|
Efficiency ratio(7) |
|
| 58.86 |
|
|
| 65.23 |
|
|
| 67.37 |
|
|
| 65.61 |
|
|
| 69.46 |
|
Loans to deposits ratio(8) |
|
| 81.65 |
|
|
| 87.20 |
|
|
| 88.68 |
|
|
| 81.10 |
|
|
| 78.89 |
|
Noninterest income to average assets(4) |
|
| 0.90 |
|
|
| 0.73 |
|
|
| 0.72 |
|
|
| 0.75 |
|
|
| 0.73 |
|
Noninterest expense to average assets(4) |
|
| 2.59 |
|
|
| 2.70 |
|
|
| 2.67 |
|
|
| 2.55 |
|
|
| 2.61 |
|
Summary Credit Quality Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets to total assets |
|
| 0.48 | % |
|
| 0.53 | % |
|
| 0.34 | % |
|
| 0.44 | % |
|
| 0.53 | % |
Nonperforming loans to total loans(8) |
|
| 0.68 |
|
|
| 0.66 |
|
|
| 0.35 |
|
|
| 0.29 |
|
|
| 0.35 |
|
Allowance for loan losses to nonperforming loans |
|
| 264.61 |
|
|
| 143.86 |
|
|
| 248.70 |
|
|
| 321.15 |
|
|
| 260.47 |
|
Allowance for loan losses to total loans(8) |
|
| 1.80 |
|
|
| 0.95 |
|
|
| 0.88 |
|
|
| 0.95 |
|
|
| 0.92 |
|
Net (recoveries) charge-offs to average loans outstanding(9) |
|
| 0.02 |
|
|
| (0.02 | ) |
|
| 0.03 |
|
|
| 0.11 |
|
|
| 0.12 |
|
Capital Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity to total assets |
|
| 9.95 | % |
|
| 11.28 | % |
|
| 10.79 | % |
|
| 10.56 | % |
|
| 7.76 | % |
Tangible common equity to tangible assets(10) |
|
| 8.78 |
|
|
| 9.88 |
|
|
| 9.31 |
|
|
| 9.58 |
|
|
| 6.64 |
|
Common equity tier 1 capital (CET1) to risk-weighted assets |
|
| 11.43 |
|
|
| 11.90 |
|
|
| 11.88 |
|
|
| 12.61 |
|
|
| 9.28 |
|
Tier 1 capital to average assets(4) |
|
| 9.13 |
|
|
| 10.25 |
|
|
| 10.16 |
|
|
| 10.53 |
|
|
| 7.71 |
|
Tier 1 capital to risk-weighted assets |
|
| 11.94 |
|
|
| 12.44 |
|
|
| 12.44 |
|
|
| 13.29 |
|
|
| 10.03 |
|
Total capital to risk-weighted assets |
|
| 13.68 |
|
|
| 13.70 |
|
|
| 13.25 |
|
|
| 14.13 |
|
|
| 10.86 |
|
| (Dollars in Thousands, except Per Share Amounts) | |||||||||||||||||||
| As of December 31, | |||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Selected Period End Balance Sheet Data: | |||||||||||||||||||
| Total assets | $ | 1,962,624 | $ | 1,828,336 | $ | 1,682,640 | $ | 1,334,068 | $ | 1,246,451 | |||||||||
| Cash and cash equivalents | 91,428 | 127,543 | 111,379 | 105,662 | 81,462 | ||||||||||||||
| Securities available for sale | 232,372 | 156,925 | 272,944 | 227,022 | 246,395 | ||||||||||||||
| Securities held to maturity | 174,684 | 189,371 | 125,031 | 131,068 | 140,571 | ||||||||||||||
| Loans held for sale | 1,896 | 2,563 | 3,867 | 3,915 | 7,118 | ||||||||||||||
| Loans held for investment | 1,359,544 | 1,243,925 | 1,067,377 | 786,519 | 697,404 | ||||||||||||||
| Allowance for loan losses | 12,859 | 11,484 | 9,263 | 7,721 | 7,093 | ||||||||||||||
| Goodwill | 18,742 | 18,742 | 18,601 | 6,116 | 6,436 | ||||||||||||||
| Core deposit intangibles, net | 2,724 | 3,308 | 3,846 | 2,881 | 3,310 | ||||||||||||||
| Noninterest-bearing deposits | 410,009 | 358,752 | 325,556 | 250,242 | 213,703 | ||||||||||||||
| Interest-bearing deposits | 1,266,311 | 1,218,039 | 1,140,641 | 826,550 | 788,110 | ||||||||||||||
| Total deposits | 1,676,320 | 1,576,791 | 1,466,197 | 1,076,792 | 1,001,813 | ||||||||||||||
| Federal Home Loan Bank advances | 45,153 | 55,170 | 21,342 | 111,539 | 111,728 | ||||||||||||||
| Subordinated debentures | 13,810 | 19,310 | 21,310 | 9,155 | 11,155 | ||||||||||||||
| Other debt | — | 18,286 | 18,000 | 11,000 | 14,000 | ||||||||||||||
| KSOP-owned shares | — | 31,661 | 35,384 | 36,300 | 30,938 | ||||||||||||||
Total shareholders’ equity less KSOP-owned shares | 207,345 | 110,253 | 102,352 | 75,989 | 66,157 | ||||||||||||||
Pro forma total shareholders’ equity(1) | 207,345 | 141,914 | 137,736 | 112,289 | 97,095 | ||||||||||||||
| As of and for the Years Ended December 31, | |||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Selected Income Statement Data: | |||||||||||||||||||
| Net interest income | $ | 59,630 | $ | 53,840 | $ | 47,759 | $ | 39,123 | $ | 35,368 | |||||||||
| Provision for loan losses | 2,850 | 3,640 | 2,175 | 1,322 | 1,745 | ||||||||||||||
| Net interest income after provision for loan losses | 56,780 | 50,200 | 45,584 | 37,801 | 33,623 | ||||||||||||||
| Noninterest income | 14,279 | 13,016 | 11,483 | 10,792 | 11,562 | ||||||||||||||
| Noninterest expense | 48,382 | 46,380 | 42,594 | 34,854 | 31,400 | ||||||||||||||
| Net realized gain (loss) on sale of securities | 167 | 82 | 77 | (212 | ) | 578 | |||||||||||||
| Income before income tax | 22,677 | 16,836 | 14,473 | 13,739 | 13,785 | ||||||||||||||
Income tax (benefit) expense(2) | 8,238 | 4,715 | 4,362 | 4,023 | (3,573 | ) | |||||||||||||
| Net earnings | 14,439 | 12,121 | 10,111 | 9,716 | 17,358 | ||||||||||||||
Dividends paid to common shareholders(2) | 5,562 | 4,615 | 4,526 | 11,863 | 3,453 | ||||||||||||||
| As of and for the Years Ended December 31, | |||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Per Share Data: | |||||||||||||||||||
Earnings per common share, basic(3) | $ | 1.41 | $ | 1.35 | $ | 1.15 | $ | 1.25 | $ | 2.40 | |||||||||
Earnings per common share, diluted(3) | 1.40 | 1.35 | 1.15 | 1.25 | 2.40 | ||||||||||||||
Book value per common share(4) | 18.75 | 16.22 | 15.47 | 14.01 | 13.17 | ||||||||||||||
Tangible book value per common share(4)(5) | 16.81 | 13.70 | 12.95 | 12.89 | 11.84 | ||||||||||||||
Weighted average common shares outstanding, basic, in thousands(6) | 10,231,000 | 8,968,000 | 8,796,000 | 7,771,000 | 7,241,000 | ||||||||||||||
Weighted average common shares outstanding, diluted, in thousands(6) | 10,313,000 | 8,976,000 | 8,802,000 | 7,771,000 | 7,243,000 | ||||||||||||||
| As of and for the Years Ended December 31, | |||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 (pro forma) | |||||||||||||||||||
| Pro Forma Information as if a C Corporation: | |||||||||||||||||||||||
| Income before income taxes | $ | 22,677 | $ | 16,836 | $ | 14,473 | $ | 13,739 | $ | 13,785 | |||||||||||||
| Income tax provision | 8,238 | 4,715 | 4,362 | 4,023 | 4,009 | ||||||||||||||||||
| Pretax pre-provision and pre-securities gain (loss) | 25,360 | — | 20,394 | — | 16,571 | — | 15,273 | — | 14,952 | ||||||||||||||
| Net earnings | 14,439 | 12,121 | 10,111 | 9,716 | 9,776 | ||||||||||||||||||
Basic earnings per share(3) | 1.41 | 1.35 | 1.15 | 1.25 | 1.35 | ||||||||||||||||||
Diluted earnings per share(3) | 1.40 | 1.35 | 1.15 | 1.25 | 1.35 | ||||||||||||||||||
| As of December 31, | ||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||
| Summary Performance Ratios: | ||||||||||||||
Return on average assets(7)(8) | 0.76 | % | 0.68 | % | 0.65 | % | 0.76 | % | 1.47 | % | ||||
Return on average equity(7)(8) | 7.78 | 8.34 | 7.44 | 8.69 | 17.98 | |||||||||
Net interest margin(9) | 3.38 | 3.27 | 3.33 | 3.33 | 3.23 | |||||||||
Efficiency ratio(10) | 65.61 | 69.46 | 71.99 | 69.53 | 67.74 | |||||||||
Loans to deposits ratio(11) | 81.10 | 78.89 | 72.80 | 73.04 | 69.61 | |||||||||
Noninterest income to average assets(7) | 0.75 | 0.73 | 0.74 | 0.85 | 0.98 | |||||||||
Noninterest expense to average assets(7) | 2.55 | 2.61 | 2.75 | 2.74 | 2.67 | |||||||||
| Summary Credit Quality Ratios: | ||||||||||||||
| Nonperforming assets to total assets | 0.44 | % | 0.53 | % | 0.25 | % | 0.37 | % | 0.71 | % | ||||
Nonperforming loans to total loans(11) | 0.29 | 0.35 | 0.23 | 0.52 | 1.04 | |||||||||
| Allowance for loan losses to nonperforming loans | 321.15 | 260.47 | 381.04 | 189.38 | 98.06 | |||||||||
Allowance for loan losses to total loans(11) | 0.95 | 0.92 | 0.87 | 0.98 | 1.02 | |||||||||
Net charge-offs to average loans outstanding(12) | 0.11 | 0.12 | 0.06 | 0.09 | 0.15 | |||||||||
| Capital Ratios: | ||||||||||||||
| Total shareholders’ equity to total assets | 10.56 | % | 7.76 | % | 8.19 | % | 8.42 | % | 7.79 | % | ||||
Tangible common equity to tangible assets(13) | 9.58 | 6.64 | 6.94 | 7.80 | 7.06 | |||||||||
| Common equity tier 1 capital (CET1) to risk-weighted assets | 12.61 | 9.28 | 10.43 | n/a | n/a | |||||||||
Tier 1 capital to average assets(7) | 10.53 | 7.71 | 8.33 | 9.05 | 8.80 | |||||||||
| Tier 1 capital to risk-weighted assets | 13.29 | 10.03 | 11.30 | 13.65 | 13.30 | |||||||||
| Total capital to risk-weighted assets | 14.13 | 10.86 | 12.08 | 14.57 | 14.22 | |||||||||
(1) | |
In accordance with provisions of the Internal Revenue Code applicable to private companies, prior to our listing on the NASDAQ Global Select Market, the terms of our KSOP provided that KSOP participants had the right, for a specified period of time, to require us to repurchase shares of our common stock that are distributed to them by the KSOP. As a result, for the periods prior to our listing on the NASDAQ Global Select Market, the shares of common stock held by the KSOP are deducted from shareholders’ equity in our consolidated balance sheet. This repurchase right terminated upon the listing of our common stock on the NASDAQ Global Select Market on May 9, 2017. |
(2) | |
Book value per common share and tangible book value per common share calculations reflect the Company’s pro forma total shareholders’ equity. |
(3) | |
We calculate tangible book value per common share as total shareholders’ equity less goodwill, core deposit intangibles and other intangible assets, net of accumulated amortization at the end of the relevant period, divided by the outstanding number of shares of our common stock at the end of the relevant period. Tangible book value per common share is a financial measure that is not recognized by, or calculated in accordance with, U.S. generally accepted accounting principles, or GAAP, and, as we calculate tangible book value per common share, the most directly comparable GAAP financial measure is total shareholders’ equity per common share. See our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption “ Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures.” |
(4) | |
We calculate our average assets and average equity for a period by dividing the period end balances of our total assets or total shareholders’ equity, as the case may be, by the number of months in the period. |
(5) | |
We have calculated our return on average assets and return on average equity for a period by dividing net earnings for that period by our average assets and average equity, as the case may be, for that period. |
(6) | |
Net interest margin represents net interest income divided by average interest-earning assets. Net interest margin does not include the effect of taxes. |
(7) | |
The efficiency ratio was calculated by dividing total noninterest expenses by net interest income plus noninterest income, excluding securities losses or gains. Taxes are not part of this calculation. |
(8) | |
Excludes loans held for sale of $5.5 million, $2.4 million, $1.8 million, $1.9 million |
(9) | |
Includes average outstanding balances of loans held for sale of $6.0 million, $2.7 million, $1.7 million, |
(10) | |
We calculate tangible common equity as total shareholders’ equity less goodwill, core deposit intangibles and other intangible assets, net of accumulated amortization, and we calculate tangible assets as total assets less goodwill and core deposit intangibles and other intangible assets, net of accumulated amortization. Tangible common equity to tangible assets is a financial measure that is not recognized by or calculated in accordance with GAAP, or a non-GAAP financial measure, and, as we calculate tangible common equity to tangible assets, the most directly comparable GAAP financial measure is total shareholders’ equity to total assets. See our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption “ Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures.” |
47
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Item 6. Selected Financial Data” and the Company’s audited consolidated financial statements and the accompanying notes included in "Item 8: Financial Statements and Supplementary Data." This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that we believe are reasonable but may prove to be inaccurate. Certain risks, uncertainties and other factors, including those set forth under “Forward-Looking Statements,” “Risk Factors” and elsewhere in this Annual Report on Form 10-K, may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis. We assume no obligation to update any of these forward-looking statements.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements. These forward-looking statements reflect our current views with respect to, among other things, future events and our 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 or phrases 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.
There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following:
• | our ability to prudently manage our growth and execute our strategy; |
• | risks associated with our acquisition and de novo branching strategy; |
• | business and economic conditions generally and in the financial services industry, nationally and within our primary markets; |
• | deterioration of our asset quality; |
• | changes in the value of collateral securing our loans; |
• | changes in management personnel; |
• | liquidity risks associated with our business; |
• | interest rate risk associated with our business; |
• | our ability to maintain important deposit customer relationships and our reputation; |
• | operational risks associated with our business; |
• | volatility and direction of market interest rates; |
• | increased competition in the financial services industry, particularly from regional and national institutions; |
• | changes in the laws, rules, regulations, interpretations or policies relating to financial institution, accounting, tax, trade, monetary and fiscal matters; |
• | further government intervention in the U.S. financial system; |
• | natural disasters and adverse weather, acts of terrorism, an outbreak of hostilities or public health outbreaks (such as coronavirus) or other international or domestic calamities, and other matters beyond our control; and |
• | other factors that are discussed in "Item 1A. Risk Factors." |
48
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Annual Report on Form 10-K. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
General
The following discussion and analysis presents our financial condition and results of operations on a consolidated basis. However, because we conduct all of our material business operations through Guaranty Bank & Trust, the discussion and analysis relates to activities primarily conducted by Guaranty Bank & Trust.
As a bank holding company that operates through one segment, we generate most of our revenue from interest on loans and investments, customer service and loan fees, fees related to the sale of mortgage loans, and trust and wealth management services. We incur interest expense on deposits and other borrowed funds, as well as noninterest expense, such as salaries and employee benefits and occupancy expenses. We analyze our ability to maximize income generated from interest earning assets and control the interest expenses of our liabilities, measured as net interest income, through our net interest margin and net interest spread. Net interest income is the difference between interest income on interest-earning assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings, which are used to fund those assets. Net interest margin is a ratio calculated as net interest income divided by average interest-earning assets. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities.
Changes in market interest rates and the interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as well as in the volume and types of interest-earning assets, interest-bearing and noninterest-bearing liabilities and shareholders’ equity, are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions and conditions in domestic and foreign financial markets. Periodic changes in the volume and types of loans in our loan portfolio are affected by, among other factors, economic and competitive conditions in Texas, as well as developments affecting the real estate, technology, financial services, insurance, transportation, manufacturing and energy sectors within our target markets and throughout the state of Texas.
Acquisitions
The comparability of our consolidated results of operations for the years ending December 31, 2017 and 2016, to the year ended December 31, 20152020 and 2019, compared to 2018, is affected by two acquisitions that we completed in 2015. On March 28, 2015, we completed the acquisition of DCB Financial. On April 11, 2015, we completed the acquisition of Texas Leadership Bank.Westbound Bank on June 1, 2018. Therefore, the results of the acquired operations of DCB Financial and Texas LeadershipWestbound Bank were included in our results of operations during all of 2020 and 2019, but only for a portion of 2015 but were included in our results2018.
Impact of operations for allCOVID-19
In March 2020, the outbreak of 2016 and 2017.
49
The financial performance of the Company generally, and in particular the ability of borrowers to be taxedpay interest on and repay principal of outstanding loans and the value of collateral securing those loans, as well as demand for loans and other products and services that the Company offers and whose success it relies on to drive growth, are highly dependent upon the business environment in the primary markets in which we operate and in the United States as a Subchapter S corporation effective December 31, 2013. Duringwhole. Unfavorable market conditions and uncertainty due to the COVID-19 pandemic may result in a deterioration in the credit quality of borrowers, an increase in the number of loan delinquencies, defaults and charge-offs, additional provisions for credit losses, adverse asset values of the collateral securing loans and an overall material adverse effect on the quality of the loan portfolio.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES") Act was signed into law. It contained substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic. The CARES Act included the Paycheck Protection Program ("PPP"), a program designed to aid small- and medium-sized businesses through federally guaranteed loans distributed through banks. PPP loans were intended to provide eligible businesses with funding for payroll and other costs to help those businesses remain viable and allow their workers to pay their bills. PPP loans are forgivable to the extent that the borrower can demonstrate that the funds were used for such costs. Any amounts not forgiven will bear interest at 1% and be repayable over a term of 24 to 60 months from origination. PPP has been subject to amendments to increase the size of the program, extend the period wein which loans could be made, extend the period for which costs could be forgiven and to provide additional flexibility to borrowers. In December 2020, several portions of the CARES Act were taxedextended as part of the Consolidated Appropriations Act, including additional stimulus payments to consumers and a Subchapter S corporation, our net income was not subjectsecond round of PPP loans for small businesses. It is expected that there may be further changes to PPP, either through legislation or changes to forms and applications required under PPP.
Significant uncertainties as to future economic conditions exist, and we did not pay, U.S. federal income taxes, and we were not requiredhave taken measured actions during 2020 to make any provision or recognize any liability for federal income taxes in our financial statements for the year ended December 31, 2008 through the year ended December 31, 2013. In addition, during these taxable periodsensure that we werehave the balance sheet strength to serve our clients and communities, including increases in liquidity and reserves supported by a Subchapter S corporation, we paid distributions tostrong capital position. Additionally, the economic pressures, coupled with the implementation of an expected loss methodology for determining our shareholders to assist them in paying the federal income taxes on the pro rata portion of our taxable income that “passed through” to our shareholders. See “
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with GAAP and with general practices within the financial services industry. Application of these principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under current circumstances. These assumptions form the basis for our judgments about the carrying values of assets and liabilities that are not readily available from independent, objective sources. We evaluate our estimates on an ongoing basis. Use of alternative assumptions may have resulted in significantly different estimates. Actual results may differ from these estimates.
We have identified the following accounting policies and estimates that, due to the difficult, subjective or complex judgments and assumptions inherent in those policies and estimates, and the potential sensitivity of our financial statements to those judgments and assumptions, are critical to an understanding of our financial condition and results of operations. We believe that the judgments, estimates and assumptions used in the preparation of our financial statements are appropriate.
Loans and Allowance for LoanCredit Losses
Loans are stated at the amount of unpaid principal, reduced by unearned income and an allowance for loancredit losses. Interest on loans is recognized using the simple-interest method on the daily balances of the principal amounts outstanding. Fees associated with the originatingorigination of loans and certain direct loan origination costs are netted and the net amount is deferred and recognized over the life of the loan as an adjustment of yield.
The accrual of interest on loans is discontinued when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due. A loan may continue to accrue interest, even if it is more than 90 days past due, if the loan is both well collateralized and it is in the process of collection. When a loan is placed on nonaccrual status, all previously accrued and unpaid interest is reversed. Interest income is subsequently recognized on a cash basis as long as the remaining book balance of the asset is deemed to be
50
returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured in accordance with the terms of the loan agreement.
The allowance for loancredit losses is an estimateda valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is adequateconfirmed. Recoveries will not exceed the aggregate of loan amounts previously charged-off and expected to absorb inherent losses on existingbe charged-off.
Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. We use the weighted-average remaining maturity method (WARM method) as the basis for the estimation of expected credit losses. The WARM method uses a historical average annual charge-off rate. This average annual charge-off rate contains loss content over a historical lookback period and is used as a foundation for estimating the credit loss reserve for the remaining outstanding balances of loans that may be uncollectible based upon review and evaluationin a pool or segment of our loan portfolio. Management’s periodic evaluationportfolio at the balance sheet date. The average annual charge-off rate is applied to the contractual term, further adjusted for estimated prepayments, to determine the unadjusted historical charge-off rate. The calculation of the allowanceunadjusted historical charge-off rate is based on general economicthen adjusted for current conditions the financial condition of borrowers, the value and liquidity of collateral, delinquency, prior loan loss experiencefor reasonable and the results of periodic reviews of the portfolio.
The allowance for loancredit losses is increased by charges to incomemeasured on a collective (pool or segment) basis when similar risk characteristics exist. Our loan portfolio segments include both regulatory call report codes and decreased by charge-offs (netinternally identified risk ratings for our commercial loan segments and delinquency status for our consumer loan segments. We also have separate segments for our warehouse lines of recoveries).
In general, the loans in our portfolio have low historical credit losses. The credit quality of loans in our commercial real estate related loan portfolio is impacted by delinquency status and debt service coverage generated by theour borrowers’ businessbusinesses and fluctuations in the value of real estate collateral. Management considers delinquency status to be the most meaningful indicator of the credit quality of one-to-four single family residential, home equity loans and lines of credit and other consumer loans. In general, these types of loans do not begin to show signs of credit deterioration or default until they have been outstanding for some period of time, a process we refersrefer to as “seasoning.” As a result, a portfolio of older loans will usually behave more predictably than a portfolio of newer loans. We consider the majority of our consumer type loans to be “seasoned” and that the credit quality and current level of delinquencies and defaults represents the level of reserve needed in the allowance for loancredit losses. If delinquencies and defaults were to increase, we may be required to increase our provision for loan losses, which would adversely affect our results of operations and financial condition.
Internal risk ratings are considered the most meaningful indicator of credit quality for new commercial and industrial, construction, and commercial real estate loans. Internal risk ratings are a key factor in identifying loans that are individually evaluated for impairment and impactimpacts management’s estimates of loss factors used in determining the amount of the allowance for loancredit losses. Internal risk ratings are updated on a continuous basis.
Loans with unique risk characteristics are considered impaired when, basedevaluated on current information and events, itan individual basis. Loans evaluated individually are excluded from the collective evaluation. When management determines that foreclosure is probable, we will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. If a loan is impaired, a specific valuation allowance is allocated, if necessary. Interest payments on impaired loansexpected credit losses are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged off when deemed uncollectible.
51
For off-balance sheet credit exposures, we estimate expected credit losses over the contractual period in which we are measured basedexposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by us. The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the present valuelikelihood that funding will occur and an estimate of expected future cash flows or the loan’s observable market price. At December 31, 2017 and December 31, 2016, all significant impaired loans have been determinedcredit losses on commitments expected to be collateral dependent and the allowance for loss has been measured utilizing thefunded over its estimated fair value of the collateral.
From time to time, we modify our loan agreement with a borrower. A modified loan is considered a troubled debt restructuring (TDR) when two conditions are met: (i) the borrower is experiencing financial difficulty and (ii) concessions are made by us that would not otherwise be considered for a borrower with similar credit risk characteristics. Modifications to loan terms may include a lower interest rate, a reduction of principal, or a longer term to maturity. We
We have certain lending policies and procedures in place that are designed to maximize loan income with an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis and makes changes as appropriate. Management receives frequent reports related to loan originations, quality, concentrations, delinquencies, non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions, both by type of loan and geography.
Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and effectively. Underwriting standards are designed to determine whether the borrower possesses sound business ethics and practices and to evaluate current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and, secondarily, on the underlying collateral provided by the borrower. Most commercial and industrial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and include personal guarantees.
Real estate loans are also subject to underwriting standards and processes similar to commercial and industrial loans. These loans are underwritten primarily based on projected cash flows and, secondarily, as loans secured by real estate.estate collateral. The repayment of real estate loans is generally largely dependent on the successful operation of the property securing the loans or the business conducted on the property securing the loan. Real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing our real estate portfolio are generally diverse in terms of type and geographic location throughout the State of Texas. This diversity helps us reduce the exposure to adverse economic events that affect any single market or industry.
We utilize methodical credit standards and analysis to supplement our policies and procedures in underwriting consumer loans. Our loan policy addresses types of consumer loans that may be originated as well as the underlying collateral, if secured, which must be perfected. The relatively small individual dollar amounts of consumer loans that are spread over numerous individual borrowers also minimizes risk.
Emerging Growth Company
The JOBS Act permits an “emerging growth company” to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. However, we have “opted out” of this provision. As a result, we will comply with new or revised accounting standards to the same extent that compliance is required for non-emerging growth companies. Our decision to opt out of the extended transition period under the JOBS Act is irrevocable.
52
Performance Summary for the Years Ended December 31, 20172020 and 2016
Net earnings were $14.4$27.4 million for the year ended December 31, 2017,2020, as compared to $12.1$26.3 million for the year ended December 31, 2016.2019. This performance resulted in basic earnings per share of $1.41$2.47 for the year ended December 31, 20172020 as compared to $1.35$2.26 for the year ended December 31, 2016.2019. The increase in net earnings over this period was primarilylargely due to the resultforgiveness and amortization of the continued maturityPaycheck Protection Program (“PPP”) loans and recognition of the
Our return on average assets was 0.76%1.07% for the year ended December 31, 2017,2020, as compared to 0.68%1.13% for the year ended December 31, 2016.2019. Our return on average equity was 7.78%10.39% for the year ended December 31, 2017,2020, as compared to 8.34%10.37% for the year ended December 31, 2016.2019. The increasedecrease in our return on average assets was primarily due to anthe 10.9% increase in net earningsthe balance of 19.1% relative to a smaller increase of 6.9% for total average assets. The decreaseassets caused by the addition of an average balance of $138.3 million in PPP loans to the return on average equity ratio resulted from an increase in average shareholder's equity of 27.6%balance sheet during the year (which earned 1% interest), primarily due to our initial public offering, relative to a smaller increasewhile only adding $6.3 million in net earnings of 19.1%.
Our fully tax equivalent net interest margin was 3.38%3.77% for the year ended December 31, 20172020 and 3.27%3.69% for the year ended December 31, 2016.2019. Our net interest margin increased as a result of improvements in loan yieldsprimarily due to risingthe maturity of higher-rate CDs, as well as continued reductions in interest rates compared to smaller increases infor non-maturing deposits as market conditions have allowed during the interest rates paid on deposit accounts.year ended December 31, 2020. Our efficiency ratio was 65.61%
Our total assets increased $134.3$422.4 million, or 7.3%18.2%, to $1.96$2.74 billion for the year endedas of December 31, 2017,2020, compared to $1.83$2.32 billion for the year endedas of December 31, 2016.2019. Total loans increased $160.4 million, or 9.4%, to $1.87 billion as of December 31, 2020, compared to $1.71 billion as of December 31, 2019. The increase in our total assetsloans is primarily the result of ouroutstanding PPP loan growth in 2017, which was entirely organic, with our totalbalances of $139.8 million, to 1,452 borrowers, as of December 31, 2020. Excluding the outstanding PPP balances as of December 31, 2020, gross loans (excluding loans held for sale) increasing $114.1increased $20.6 million, or 9.3%, to $1.35 billion for1.21% from the year ended December 31, 2017, compared to $1.23 billion for the year ended December 31, 2016.prior year. Total shareholders’ equity increased $97.1$11.1 million, or 46.1%4.2%, to $207.3$272.6 million for the year endedas of December 31, 2017,2020, compared to $141.9$261.6 million for the year endedas of December 31, 2016.2019. The increase in shareholders' equity was due primarily to the 19.1%4.3% increase in net earnings in 20172020 and an increase in accumulated other comprehensive income of $11.4 million, which was due to a $12.0 million unrealized gain on available for sale securities during the year, partially offset by the repurchase of common stock and payment of dividends during 2020.
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Large provisions for credit losses resulting from effects of COVID-19 and participation in the PPP program have created temporary extraordinary results in the calculation of our initial public offering in May 2017.net earnings and related performance ratios. With the credit outlook still uncertain as a result of COVID-19 and other economic factors, the following table illustrates net earnings and net core earnings per share, which are pre-tax, pre-provision and pre-extraordinary PPP income, as well as performance ratios for the years ended December 31, 2020 and 2019.
|
| For The Years Ended December 31, |
| |||||
(in thousands) |
| 2020 |
|
| 2019 |
| ||
Net earnings |
| $ | 27,402 |
|
| $ | 26,279 |
|
Adjustments: |
|
|
|
|
|
|
|
|
Provision for credit losses |
|
| 13,200 |
|
|
| 1,250 |
|
Income tax provision |
|
| 5,895 |
|
|
| 5,778 |
|
PPP interest income, including fees |
|
| (6,270 | ) |
|
| — |
|
Net interest expense on PPP-related borrowings |
|
| 34 |
|
|
| — |
|
Net core earnings† |
| $ | 40,261 |
|
| $ | 33,307 |
|
|
|
|
|
|
|
|
|
|
Total average assets |
| $ | 2,571,003 |
|
| $ | 2,318,939 |
|
Adjustments: |
|
|
|
|
|
|
|
|
PPP loans average balance |
|
| (138,291 | ) |
|
| — |
|
Excess fed funds sold due to PPP-related borrowings |
|
| (22,951 | ) |
|
| — |
|
Total average assets, adjusted† |
| $ | 2,409,761 |
|
| $ | 2,318,939 |
|
Total average equity |
| $ | 263,766 |
|
| $ | 253,523 |
|
|
|
|
|
|
|
|
|
|
PERFORMANCE RATIOS |
|
|
|
|
|
|
|
|
Net earnings to average assets (annualized) |
|
| 1.07 | % |
|
| 1.13 | % |
Net earnings to average equity (annualized) |
|
| 10.39 |
|
|
| 10.37 |
|
Net core earnings to average assets, as adjusted (annualized)† |
|
| 1.67 |
|
|
| 1.44 |
|
Net core earnings to average equity (annualized)† |
|
| 15.26 |
|
|
| 13.14 |
|
|
|
|
|
|
|
|
|
|
PER COMMON SHARE DATA |
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding, basic |
|
| 11,108,564 |
|
|
| 11,638,897 |
|
Earnings per common share, basic |
| $ | 2.47 |
|
| $ | 2.26 |
|
Net core earnings per common share, basic† |
|
| 3.62 |
|
|
| 2.86 |
|
|
|
|
|
|
|
|
|
|
† Non-GAAP financial metric. Calculations of this metric and reconciliations to GAAP are included in "—Non-GAAP Financial Measures". |
| |||||||
54
Results of Operations for the Years Ended December 31, 2017, 20162020 and 2015
A discussion regarding our results of operations for the year ended December 31, 2019 compared to the year ended December 31, 2018 can be found under “Item 7. Management's Discussion and Analysis of Financial Condition and Result of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 13, 2020, which is available on the SEC’s website at www.sec.gov and our Investor Relations website at investors.gnty.com.
Net Interest Income
Our operating results depend primarily on our net interest income. Fluctuations in market interest rates impact the yield and rates paid on interest-earning assets and interest-bearing liabilities, respectively. Changes in the amount and type of interest-earning assets and interest-bearing liabilities also impact our net interest income. To evaluate net interest income, we measure and monitor (1) yields on our loans and other interest-earning assets, (2) the costs of our deposits and other funding sources, (3) our net interest spread and (4) our net interest margin. Because noninterest-bearing sources of funds, such as noninterest-bearing deposits and shareholders’ equity also fund interest-earning assets, net interest margin includes the benefit of these noninterest-bearing sources.
Net interest income, before the provision for credit losses, was $90.0 million compared to $78.9 million for the yearyears ended December 31, 2017 was $59.6 million, compared to $53.8 million for the same period in 2016,2020 and 2019, respectively, an increase of $5.8$11.1 million, or 10.8%14.1%. The increase in net interest income was comprised ofresulted from a $7.1$10.6 million, or 10.9%44.9%, decrease in interest expense and a $481,000, or 0.5%, increase in interest income offset byincome. Although there was a $1.3$183.8 million, or 11.8%, increase in interest expense. The growth in interest income was primarily attributable to a $103.3 million, or 8.76%10.9%, increase in average loans outstanding for the year ended December 31, 2017,2020, compared to the same period in 2016, as well asyear ended December 31, 2019, that increase was offset by a four41 basis point increasedecrease in the average yield on total loans. The increase in average loans outstanding was primarily due to loans originated through the PPP program and some organic growth in all of our markets, continuing maturity of
55
Average Balance Sheet Amounts, Interest Earned and interest expense, respectively.
The following table presents an analysis of net interest income and net interest spread for the periods indicated, including average outstanding balances for each major category of interest-earning assets and interest-
|
| For The Years Ended December 31, |
| |||||||||||||||||||||
|
| 2020 |
|
| 2019 |
| ||||||||||||||||||
(in thousands) |
| Average Outstanding Balance |
|
| Interest Earned/ Interest Paid |
|
| Average Yield/ Rate |
|
| Average Outstanding Balance |
|
| Interest Earned/ Interest Paid |
|
| Average Yield/ Rate |
| ||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans(1) |
| $ | 1,872,914 |
|
| $ | 93,335 |
|
|
| 4.98 | % |
| $ | 1,689,108 |
|
| $ | 90,980 |
|
|
| 5.39 | % |
Securities available for sale |
|
| 338,510 |
|
|
| 7,798 |
|
|
| 2.30 |
|
|
| 229,351 |
|
|
| 5,715 |
|
|
| 2.49 |
|
Securities held to maturity |
|
| 35,935 |
|
|
| 956 |
|
|
| 2.66 |
|
|
| 159,104 |
|
|
| 4,031 |
|
|
| 2.53 |
|
Nonmarketable equity securities |
|
| 10,761 |
|
|
| 439 |
|
|
| 4.08 |
|
|
| 11,343 |
|
|
| 640 |
|
|
| 5.64 |
|
Interest-bearing deposits in other banks |
|
| 146,659 |
|
|
| 514 |
|
|
| 0.35 |
|
|
| 53,783 |
|
|
| 1,195 |
|
|
| 2.22 |
|
Total interest-earning assets |
|
| 2,404,779 |
|
|
| 103,042 |
|
|
| 4.28 |
|
|
| 2,142,689 |
|
|
| 102,561 |
|
|
| 4.79 |
|
Allowance for credit losses |
|
| (29,100 | ) |
|
|
|
|
|
|
|
|
|
| (15,692 | ) |
|
|
|
|
|
|
|
|
Noninterest-earning assets |
|
| 195,324 |
|
|
|
|
|
|
|
|
|
|
| 191,942 |
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 2,571,003 |
|
|
|
|
|
|
|
|
|
| $ | 2,318,939 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
| $ | 1,468,353 |
|
| $ | 11,624 |
|
|
| 0.79 | % |
| $ | 1,460,215 |
|
| $ | 21,611 |
|
|
| 1.48 | % |
Advances from FHLB and fed funds purchased |
|
| 75,940 |
|
|
| 470 |
|
|
| 0.62 |
|
|
| 58,070 |
|
|
| 1,389 |
|
|
| 2.39 |
|
Line of credit |
|
| 6,727 |
|
|
| 213 |
|
|
| 3.17 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Subordinated debentures |
|
| 17,198 |
|
|
| 702 |
|
|
| 4.08 |
|
|
| 11,905 |
|
|
| 655 |
|
|
| 5.50 |
|
Securities sold under agreements to repurchase |
|
| 18,115 |
|
|
| 51 |
|
|
| 0.28 |
|
|
| 10,901 |
|
|
| 36 |
|
|
| 0.33 |
|
Total interest-bearing liabilities |
|
| 1,586,333 |
|
|
| 13,060 |
|
|
| 0.82 |
|
|
| 1,541,091 |
|
|
| 23,691 |
|
|
| 1.54 |
|
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits |
|
| 696,454 |
|
|
|
|
|
|
|
|
|
|
| 500,895 |
|
|
|
|
|
|
|
|
|
Accrued interest and other liabilities |
|
| 24,450 |
|
|
|
|
|
|
|
|
|
|
| 23,430 |
|
|
|
|
|
|
|
|
|
Total noninterest-bearing liabilities |
|
| 720,904 |
|
|
|
|
|
|
|
|
|
|
| 524,325 |
|
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
| 263,766 |
|
|
|
|
|
|
|
|
|
|
| 253,523 |
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
| $ | 2,571,003 |
|
|
|
|
|
|
|
|
|
| $ | 2,318,939 |
|
|
|
|
|
|
|
|
|
Net interest rate spread(2) |
|
|
|
|
|
|
|
|
|
| 3.46 | % |
|
|
|
|
|
|
|
|
|
| 3.25 | % |
Net interest income |
|
|
|
|
| $ | 89,982 |
|
|
|
|
|
|
|
|
|
| $ | 78,870 |
|
|
|
|
|
Net interest margin(3) |
|
|
|
|
|
|
|
|
|
| 3.74 | % |
|
|
|
|
|
|
|
|
|
| 3.68 | % |
Net interest margin, fully taxable equivalent(4) |
|
|
|
|
|
|
|
|
|
| 3.77 | % |
|
|
|
|
|
|
|
|
|
| 3.69 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes average outstanding balances of loans held for sale of $6.0 million and $2.7 million for the years ended December 31, 2020 and 2019, 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. |
| |||||||||||||||||||||||
(4) Net interest margin on a taxable equivalent basis is equal to net interest income adjusted for nontaxable income divided by average interest-earning assets, using a marginal tax rate of 21%. |
| |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Years Ended December 31, | ||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2015 | ||||||||||||||||||||||||||||||
Average Outstanding Balance | Interest Earned/ Interest Paid | Average Yield/ Rate | Average Outstanding Balance | Interest Earned/ Interest Paid | Average Yield/ Rate | Average Outstanding Balance | Interest Earned/ Interest Paid | Average Yield/ Rate | ||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||
| Interest-earnings assets: | ||||||||||||||||||||||||||||||||
Total loans(1) | $ | 1,283,253 | $ | 61,014 | 4.75 | % | $ | 1,179,938 | $ | 55,565 | 4.71 | % | $ | 991,889 | $ | 47,845 | 4.82 | % | ||||||||||||||
| Securities available for sale | 223,095 | 5,081 | 2.28 | % | 198,372 | 3,723 | 1.88 | % | 233,484 | 4,393 | 1.88 | % | ||||||||||||||||||||
| Securities held to maturity. | 182,549 | 4,409 | 2.42 | % | 182,870 | 4,678 | 2.56 | % | 126,659 | 3,453 | 2.73 | % | ||||||||||||||||||||
| Nonmarketable equity securities | 7,134 | 465 | 6.52 | % | 8,547 | 271 | 3.17 | % | 7,450 | 91 | 1.22 | % | ||||||||||||||||||||
| Interest-bearing deposits in other banks | 70,692 | 813 | 1.15 | % | 78,232 | 471 | 0.60 | % | 72,997 | 300 | 0.41 | % | ||||||||||||||||||||
| Total interest-earning assets | 1,766,723 | $ | 71,782 | 4.06 | % | 1,647,959 | $ | 64,708 | 3.93 | % | 1,432,479 | $ | 56,082 | 3.92 | % | |||||||||||||||||
| Allowance for loan losses | (12,217 | ) | (10,826 | ) | (8,701 | ) | ||||||||||||||||||||||||||
| Noninterest-earnings assets | 144,971 | 139,575 | 127,470 | |||||||||||||||||||||||||||||
| Total assets | $ | 1,899,477 | $ | 1,776,708 | $ | 1,551,248 | ||||||||||||||||||||||||||
| Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||
| Interest-bearing deposits | $ | 1,241,115 | $ | 10,604 | 0.85 | % | $ | 1,175,520 | $ | 9,050 | 0.77 | % | $ | 964,900 | $ | 6,524 | 0.68 | % | ||||||||||||||
| Advances from FHLB and fed funds purchased | 46,268 | 472 | 1.02 | % | 62,961 | 299 | 0.47 | % | 104,157 | 674 | 0.65 | % | ||||||||||||||||||||
| Other debt | 6,711 | 301 | 4.49 | % | 13,198 | 586 | 4.44 | % | 10,578 | 497 | 4.70 | % | ||||||||||||||||||||
| Subordinated debentures | 15,902 | 724 | 4.55 | % | 20,313 | 882 | 4.34 | % | 14,078 | 603 | 4.28 | % | ||||||||||||||||||||
| Securities sold under agreements to repurchase | 13,306 | 51 | 0.38 | % | 13,011 | 51 | 0.39 | % | 11,223 | 25 | 0.22 | % | ||||||||||||||||||||
| Total interest-bearing liabilities | 1,323,302 | 12,152 | 0.92 | % | 1,285,003 | 10,868 | 0.85 | % | 1,104,936 | 8,323 | 0.75 | % | ||||||||||||||||||||
| Noninterest-bearing liabilities: | ||||||||||||||||||||||||||||||||
| Noninterest-bearing deposits | 384,049 | 340,240 | 301,288 | |||||||||||||||||||||||||||||
| Consideration payable | — | — | 3,735 | |||||||||||||||||||||||||||||
| Accrued interest and other liabilities | 6,648 | 6,080 | 5,335 | |||||||||||||||||||||||||||||
| Total noninterest-bearing liabilities | 390,697 | 346,320 | 310,358 | |||||||||||||||||||||||||||||
| Shareholders’ equity | 185,478 | 145,385 | 135,954 | |||||||||||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 1,899,477 | $ | 1,776,708 | $ | 1,551,248 | ||||||||||||||||||||||||||
Net interest rate spread(2) | 3.14 | % | 3.08 | % | 3.17 | % | ||||||||||||||||||||||||||
| Net interest income | $ | 59,630 | $ | 53,840 | $ | 47,759 | ||||||||||||||||||||||||||
Net interest margin(3) | 3.38 | % | 3.27 | % | 3.33 | % | ||||||||||||||||||||||||||
56
To illustrate core net interest margin and remove the extraordinary impacts resulting from the PPP program, the table below excludes PPP loans and their associated fees and costs, as well as the average outstanding balancesbalance of loans held for sale of $1.7 million, $3.0 millionrelated FHLB borrowings and $4.4 millionfed funds sold, for the yearsyear ended December 31, 2017, 2016 and 2015 respectively.2020:
|
| For the Year Ended December 31, 2020 |
| |||||||||
(in thousands) |
| Average Outstanding Balance |
|
| Interest Earned/ Interest Paid |
|
| Average Yield/ Rate |
| |||
Total interest-earning assets |
| $ | 2,404,779 |
|
| $ | 103,042 |
|
|
| 4.28 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
| 1,872,914 |
|
|
| 93,335 |
|
|
| 4.98 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
PPP loans average balance and net fees(1) |
|
| (138,291 | ) |
|
| (6,270 | ) |
|
| 4.53 |
|
Total loans, net of PPP effects |
| $ | 1,734,623 |
|
| $ | 87,065 |
|
|
| 5.02 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits in other banks |
|
| 146,659 |
|
|
| 514 |
|
|
| 0.35 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Excess fed funds sold due to PPP-related borrowings |
|
| (22,951 | ) |
|
| (23 | ) |
|
| 0.10 |
|
Total interest-bearing deposits in other banks, net of PPP effects |
| $ | 123,708 |
|
| $ | 491 |
|
|
| 0.40 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets, net of PPP effects† |
| $ | 2,243,537 |
|
| $ | 96,749 |
|
|
| 4.31 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total advances from FHLB and fed funds purchased |
|
| 75,940 |
|
|
| 470 |
|
|
| 0.62 |
|
Interest expense adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
PPP-related FHLB borrowings |
|
| (22,951 | ) |
|
| (57 | ) |
|
| 0.25 |
|
Total advances from FHLB and fed funds purchased, net of PPP effects |
| $ | 52,989 |
|
| $ | 413 |
|
|
| 0.78 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
| $ | 89,982 |
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
|
| 3.74 | % |
Net interest income, net of PPP effects† |
|
|
|
|
|
| 83,746 |
|
|
|
|
|
Net interest margin, net of PPP effects† |
|
|
|
|
|
|
|
|
|
| 3.73 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
† Non-GAAP financial metric. Calculations of this and reconciliations to GAAP are included in "—Non-GAAP Financial Measures" |
| |||||||||||
(1) Interest earned consists of interest income of $1.4 million and net origination fees recognized in earnings of $4.9 million for the year ended December 31, 2020. |
| |||||||||||
The following table presents information regarding the dollar amount of changes in interest income and interest expense for the periods indicated for each major component of interest-earning assets and interest-bearing liabilities and distinguishes between the changes attributable to changes in volume and changes attributable to changes in interest rates. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to rate.
|
| For the Year Ended December 31, 2020 vs. 2019 |
| |||||||||
|
| Increase (Decrease) |
|
|
|
|
| |||||
|
| Due to Change in |
|
| Total Increase |
| ||||||
(in thousands) |
| Volume |
|
| Rate |
|
| (Decrease) |
| |||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
| $ | 9,907 |
|
| $ | (7,552 | ) |
| $ | 2,355 |
|
Securities available for sale |
|
| 2,718 |
|
|
| (635 | ) |
|
| 2,083 |
|
Securities held to maturity |
|
| (3,116 | ) |
|
| 41 |
|
|
| (3,075 | ) |
Nonmarketable equity securities |
|
| (33 | ) |
|
| (168 | ) |
|
| (201 | ) |
Interest-earning deposits in other banks |
|
| 2,062 |
|
|
| (2,743 | ) |
|
| (681 | ) |
Total increase (decrease) in interest income |
| $ | 11,538 |
|
| $ | (11,057 | ) |
| $ | 481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
| $ | 120 |
|
| $ | (10,107 | ) |
| $ | (9,987 | ) |
Advances from FHLB and fed funds purchased |
|
| 427 |
|
|
| (1,346 | ) |
|
| (919 | ) |
Line of credit |
|
| — |
|
|
| 213 |
|
|
| 213 |
|
Subordinated debentures |
|
| 291 |
|
|
| (244 | ) |
|
| 47 |
|
Securities sold under agreements to repurchase |
|
| 24 |
|
|
| (9 | ) |
|
| 15 |
|
Total increase (decrease) in interest expense |
|
| 862 |
|
|
| (11,493 | ) |
|
| (10,631 | ) |
Increase in net interest income |
| $ | 10,676 |
|
| $ | 436 |
|
| $ | 11,112 |
|
For the Years Ended December 31, 2017 vs. 2016 | For the Years Ended December 31, 2016 vs. 2015 | ||||||||||||||||||||||
Increase (Decrease) Due to Change in | Total Increase (Decrease) | Increase (Decrease) Due to Change in | Total Increase (Decrease) | ||||||||||||||||||||
| Volume | Rate | Volume | Rate | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Interest-earning assets: | |||||||||||||||||||||||
| Total loans | $ | 4,912 | $ | 537 | $ | 5,449 | $ | 8,856 | $ | (1,136 | ) | $ | 7,720 | ||||||||||
| Securities available for sale | 563 | 795 | 1,358 | (659 | ) | (11 | ) | (670 | ) | ||||||||||||||
| Securities held to maturity | (8 | ) | (261 | ) | (269 | ) | 1,438 | (213 | ) | 1,225 | |||||||||||||
| Nonmarketable equity securities | (92 | ) | 286 | 194 | 35 | 145 | 180 | ||||||||||||||||
| Interest-earning deposits in other banks | (87 | ) | 429 | 342 | 32 | 139 | 171 | ||||||||||||||||
| Total increase (decrease) in interest income | $ | 5,288 | $ | 1,786 | $ | 7,074 | $ | 9,702 | $ | (1,076 | ) | $ | 8,626 | ||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||||||
| Interest-bearing deposits | $ | 560 | $ | 994 | $ | 1,554 | $ | 1,622 | $ | 904 | $ | 2,526 | |||||||||||
| Advances from FHLB and Fed funds Purchased | (170 | ) | 343 | 173 | (196 | ) | (179 | ) | (375 | ) | |||||||||||||
| Other debt | (291 | ) | 6 | (285 | ) | 116 | (27 | ) | 89 | ||||||||||||||
| Subordinated debentures | (201 | ) | 43 | (158 | ) | 271 | 8 | 279 | |||||||||||||||
| Securities sold under agreements to repurchase | 1 | (1 | ) | — | 7 | 19 | 26 | ||||||||||||||||
| Total (decrease) increase in interest expense | (101 | ) | 1,385 | 1,284 | 1,820 | 725 | 2,545 | ||||||||||||||||
| Increase (decrease) in net interest income | $ | 5,389 | $ | 401 | $ | 5,790 | $ | 7,882 | $ | (1,801 | ) | $ | 6,081 | ||||||||||
57
Provision for LoanCredit Losses
The provision for loancredit losses is a charge to income in order to bring our allowance for loancredit losses to a level deemed appropriate by management.management based on factors such as historical loss experience, trends in classified and past due loans, volume and growth in the loan portfolio, current economic conditions in our markets and value of the underlying collateral. Loans are charged off against the allowance for credit losses when determined appropriate. Although management believes it uses the best information available to make determinations with respect to the provision for credit losses, future adjustments may be necessary if economic conditions differ from the assumptions used in making the determination. For a full description of the factors taken into account by our management in determining the allowance for loancredit losses see “
The provision for loancredit losses for the year ended December 31, 20172020 was $2.9$13.2 million compared to $3.6$1.3 million for the year ended December 31, 2016. 2019. The provision results largely from risk grade changes in the loan portfolio and from additional qualitative factor adjustments, specifically to address virus-related concerns, that were made in the first half of 2020 under the CECL model, and were primarily derived from changes in national GDP, Texas unemployment rates and national industry related CRE trends, all of which are impacted by the effects of COVID-19. Beginning in March 2020, the Bank closely reviewed its loan portfolio and spoke to borrowers about their financial hardships, if any, due to COVID-19. As a result, many borrowers in affected industries were downgraded to an appropriate risk rating to capture the additional risk and to work with borrowers to navigate through their cash flow or other financial uncertainties. Management believes the provisions made as a result of loan downgrades and qualitative factor adjustments in the CECL model appropriately capture the current credit risks associated with COVID-19. However, the outbreak of COVID-19, or mutating strains, could worsen in the short term, leading to possible changes in customer and consumer behavior and stronger response measures by government officials, and the timing of economic recovery remains uncertain.
As of December 31, 20172020 and December 31, 2016,2019, our allowance for loan and leasecredit losses was $12.9$33.6 million and $11.5$16.2 million, respectively, which were comprised of general allowance reserves of $12.7 million and $11.2 million, respectively, with specific reserves allocated to cover classified and problem loans of $134,000 and $253,000, respectively. The decrease in provision expense was primarily due to improved credit quality and loan growth at a slower rate during 2017 than during 2016. As of December 31, 2017,2020, there was $9.3$15.5 million in loan balances past due 30 or more days and $4.0$12.7 million in loan balances for nonperforming (nonaccrual)(non-accrual) loans, compared to $11.7$8.3 million and $4.4$11.3 million, respectively, for the year ended December 31, 2016.
The provision forincrease in nonperforming loans and assets resulted primarily from one SBA 7(a), partially guaranteed (75%) loan losses forand one commercial loan, both of which were acquired in our June 2018 acquisition of Westbound Bank. To facilitate the year endedworkout of the SBA loan, we repurchased the guaranteed portion of the loan from a third party, resulting in an increased book balance of $3.1 million and a total book balance, which remains 75% SBA guaranteed, of $3.9 million. The increased book balance from the SBA loan of $3.1 million, combined with the commercial loan book balance of $1.1 million, comprises $4.2 million of the increase from December 31, 2016 increased $1.52019, which was partially offset by decreases in smaller dollar loans. Three SBA partially guaranteed (75%) loans relating to loans acquired from Westbound Bank, including the $3.1 million to $3.6 million compared to $2.2 million for the year endedrepurchased portion, are included in nonaccrual loans at December 31, 2015. As2020 and had combined book balances of $8.7 million. These loans were internally identified as problem assets prior to COVID-19 and are properly reserved using our CECL methodology. Management continues to work toward a satisfactory resolution for these three loans. Non-performing assets as a percentage of total loans at December 31, 2020 was 0.70%. Excluding these partially guaranteed SBA loans, non-performing assets as a percentage of total loans at December 31, 2020 would be 0.24% and, excluding PPP loans, would be 0.76%. The remaining $4.0 million in non-accrual loans as of December 31, 20162020 consisted primarily of smaller dollar, first lien residential home loans and December 31, 2015, our general allowance reserves were $11.2included one loan relationship with an outstanding balance of $1.1 million and $8.7 million, respectively, with specific reserves allocated to cover classified and problem loans of $253,000 and $527,000, respectively. The increase in provision expense was primarily due to the growth in total loans of $176.5 million, or 16.5%, to $1.25 billion for the year ended December 31, 2016, from $1.07 billion for the year ended December 31, 2015, which resulted in a $2.5 million increase in general allowance reserves. Asas of December 31, 2016, there was $11.7 million in loan balances past due 30 or more days and $4.4 million in loan balances for nonperforming (nonaccrual) loans, compared to $9.7 million and $2.4 million, respectively, for the year ended December 31, 2015. However, the specific reserves associated with these loans decreased due to improvements in the values of the underlying collateral that secure those loans, leading to a $274,000 decrease in specific reserves for the year ended December 31, 2016 over the year ended December 31, 2015 that partially offset the increase in general reserves driven by our loan growth.
Net charge-offs for the year ended December 31, 20172020 totaled $1.5 million, or 0.11%, of total loans,$331,000, compared to net charge-offsrecoveries of $1.4 million, or 0.11%, and net charge-offs of $633,000, or 0.06%, for the same periods$301,000 in 2016 and 2015, respectively. During 2017, the volume of smaller dollar consumer loan charge-offs increased compared to prior years but there were no individual loan charge-offs that were greater than $500,000.2019. The increase in net charge-
58
The following table shows the ratio of net charge-offs (recoveries) to average loans outstanding by loan category for the year ended December 31, 2016, from the year ended December 31, 2015, was primarily due to one borrowing relationship with a charge-off amount of $1.2 million in which the assets were repossessed and some of which are currently held for sale.dates indicated:
|
| For the Year Ended December 31, |
| |||||
(dollars in thousands) |
| 2020 |
|
| 2019 |
| ||
Commercial and industrial |
|
| (0.01 | )% |
|
| (0.09 | )% |
Real estate: |
|
|
|
|
|
|
|
|
Construction and development |
|
| — |
|
|
| — |
|
Commercial real estate |
|
| — |
|
|
| — |
|
Farmland |
|
| — |
|
|
| — |
|
1-4 family residential |
|
| 0.02 | % |
|
| — |
|
Multi-family residential |
|
| — |
|
|
| — |
|
Consumer and overdrafts |
|
| 0.22 | % |
|
| (0.07 | )% |
Agricultural |
|
| (0.01 | )% |
|
| — |
|
Overdrafts |
|
| 62.89 | % |
|
| 44.38 | % |
Net charge-offs (recoveries) to total loans |
|
| 0.22 | % |
|
| (0.16 | )% |
Noninterest Income
Our primary sources of recurring noninterest income are service charges on deposit accounts, merchant and debit card fees, fiduciary income, gains on the sale of loans, and income from bank-owned life insurance. Noninterest income does not include loan origination fees to the extent they exceed the direct loan origination costs, which are generally recognized over the life of the related loan as an adjustment to yield using the interest method.
For the year ended December 31, 2017,2020, noninterest income totaled $14.3$23.0 million, an increase of $1.3$6.1 million, or 9.7%35.8%, compared to $13.0$17.0 million for the year ended December 31, 2016. For the year ended December 31, 2016, noninterest income increased $1.5 million, or 13.4%, from $11.5 million for the year ended December 31, 2015.2019. The following table presents, for the periods indicated, the major categories of noninterest income:
|
| For The Year Ended December 31, |
|
| Increase (Decrease) |
| ||||||
(in thousands) |
| 2020 |
|
| 2019 |
|
| 2020 vs. 2019 |
| |||
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
Service charges |
| $ | 3,064 |
|
| $ | 3,715 |
|
| $ | (651 | ) |
Merchant and debit card fees |
|
| 5,515 |
|
|
| 4,264 |
|
|
| 1,251 |
|
Fiduciary and custodial income |
|
| 2,012 |
|
|
| 1,760 |
|
|
| 252 |
|
Gain on sale of loans |
|
| 6,834 |
|
|
| 2,850 |
|
|
| 3,984 |
|
Bank-owned life insurance income |
|
| 838 |
|
|
| 774 |
|
|
| 64 |
|
Loss on sales of investment securities |
|
| — |
|
|
| (22 | ) |
|
| 22 |
|
Loan processing fee income |
|
| 628 |
|
|
| 590 |
|
|
| 38 |
|
Warehouse lending fees |
|
| 957 |
|
|
| 679 |
|
|
| 278 |
|
Mortgage fee income |
|
| 771 |
|
|
| 323 |
|
|
| 448 |
|
Other noninterest income |
|
| 2,418 |
|
|
| 2,029 |
|
|
| 389 |
|
Total noninterest income |
| $ | 23,037 |
|
| $ | 16,962 |
|
| $ | 6,075 |
|
| For the Years Ended December 31, | Increase (Decrease) | For the Years Ended December 31, | Increase (Decrease) | ||||||||||||||||||||
| 2017 | 2016 | 2017 v. 2016 | 2016 | 2015 | 2016 v. 2015 | ||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Noninterest income: | |||||||||||||||||||||||
| Service charges on deposit accounts | $ | 3,746 | $ | 3,530 | $ | 216 | $ | 3,530 | $ | 3,493 | $ | 37 | |||||||||||
| Merchant and debit card fees | 3,119 | 2,741 | 378 | 2,741 | 2,737 | 4 | |||||||||||||||||
| Fiduciary income | 1,463 | 1,405 | 58 | 1,405 | 1,432 | (27 | ) | ||||||||||||||||
| Gain on sales of loans | 1,981 | 1,718 | 263 | 1,718 | 1,053 | 665 | |||||||||||||||||
| Bank-owned life insurance income | 461 | 453 | 8 | 453 | 421 | 32 | |||||||||||||||||
| Gain on sales of investment securities | 167 | 82 | 85 | 82 | 77 | 5 | |||||||||||||||||
| Loan processing fee income | 597 | 622 | (25 | ) | 622 | 501 | 121 | ||||||||||||||||
| Other | 2,745 | 2,465 | 280 | 2,465 | 1,769 | 696 | |||||||||||||||||
| Total noninterest income | $ | 14,279 | $ | 13,016 | $ | 1,263 | $ | 13,016 | $ | 11,483 | $ | 1,533 | |||||||||||
Service Charges on Deposit Accounts
59
Merchant and Debit Card Fees
Fiduciary and the negotiation of better pricing, resulting in an overall increase in related net income. See "
Gain on Sales of Loans
. We originate long-term fixed-rate mortgage loans for resale into the secondary market.Bank-Owned Life Insurance
. We invest in bank-owned life insurance due to its attractive nontaxable return and protection against the loss of our key employees. We record income based on the growth of the cash surrender value of these policies as well as the annual yield net of fees and charges, including mortality charges. Income from bank-owned life insurance increasedWarehouse Lending Fees. A portion of our lending involves the origination of mortgage warehouse lines of credit. Mortgage warehouse lending increased by $278,000, or 40.9% from December 31, 2019 to December 31, 2020. The large increase is primarily due to a decrease in mortgage loan rates during 2020, which resulted in an increase in mortgage refinances during the year.
Mortgage Fee Income. Mortgage fee income consists of the fees related to the origination and sale of mortgage loans to the secondary market. The increase of $448,000, or 138.7% from December 31, 2019 was primarily due to the purchase of $445,000 of additional bank-owned life insurance in 2016, which was partially offset by a decrease in tax equivalent yields on these policies from 4.15% for 2015 compared to 4.00% for 2016.
Other
. This category includes a variety of other income producing activitiesNoninterest Expense
Generally, noninterest expense is composed of all employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships and providing bank services. The largest component of noninterest expense is salaries and employee benefits. Noninterest expense also includes operational expenses, such as occupancy expenses, depreciation and amortization of our facilities and our furniture, fixtures and office equipment, professional and regulatory fees, including FDIC assessments, data processing expenses, and advertising and promotion expenses.
60
For the year ended December 31, 2017,2020, noninterest expense totaled $48.4$66.5 million, an increase of $2.0$4.0 million, or 4.3%6.4%, compared to $46.4$62.5 million for the same period in 2016. Noninterest expense increased $3.8 million, or 8.9%, for the year ended December 31, 2016, compared to the same period in 2015.2019. The following table presents, for the periods indicated, the major categories of noninterest expense:
|
| For The Year Ended December 31, |
|
| Increase (Decrease) |
| ||||||
(in thousands) |
| 2020 |
|
| 2019 |
|
| 2020 vs. 2019 |
| |||
Employee compensation and benefits |
| $ | 37,193 |
|
| $ | 35,907 |
|
| $ | 1,286 |
|
Non-staff expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Occupancy expenses |
|
| 10,220 |
|
|
| 9,834 |
|
|
| 386 |
|
Amortization |
|
| 1,349 |
|
|
| 1,378 |
|
|
| (29 | ) |
Software and technology |
|
| 4,104 |
|
|
| 3,341 |
|
|
| 763 |
|
FDIC insurance assessment fees |
|
| 821 |
|
|
| 173 |
|
|
| 648 |
|
Legal and professional fees |
|
| 2,650 |
|
|
| 2,610 |
|
|
| 40 |
|
Advertising and promotions |
|
| 1,498 |
|
|
| 1,655 |
|
|
| (157 | ) |
Telecommunication expense |
|
| 864 |
|
|
| 676 |
|
|
| 188 |
|
ATM and debit card expense |
|
| 1,951 |
|
|
| 1,347 |
|
|
| 604 |
|
Director and committee fees |
|
| 846 |
|
|
| 873 |
|
|
| (27 | ) |
Other noninterest expense |
|
| 5,026 |
|
|
| 4,731 |
|
|
| 295 |
|
Total noninterest expense |
| $ | 66,522 |
|
| $ | 62,525 |
|
| $ | 3,997 |
|
For the Years Ended December 31, | Increase (Decrease) | For the Years Ended December 31, | Increase (Decrease) | |||||||||||||||||||||
| 2017 | 2016 | 2017 v. 2016 | 2016 | 2015 | 2016 v. 2015 | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
| Employee compensation and benefits | $ | 27,078 | $ | 25,611 | $ | 1,467 | $ | 25,611 | $ | 22,469 | $ | 3,142 | ||||||||||||
| Non-staff expenses: | ||||||||||||||||||||||||
| Occupancy expenses | 7,400 | 6,870 | 530 | 6,870 | 6,468 | 402 | ||||||||||||||||||
| Amortization | 1,033 | 980 | 53 | 980 | 951 | 29 | ||||||||||||||||||
| Software support fees | 2,089 | 1,870 | 219 | 1,870 | 1,840 | 30 | ||||||||||||||||||
| FDIC insurance assessment fees | 671 | 1,200 | (529 | ) | 1,200 | 743 | 457 | |||||||||||||||||
| Legal and professional fees | 2,061 | 1,935 | 126 | 1,935 | 2,064 | (129 | ) | |||||||||||||||||
| Advertising and promotions | 1,193 | 1,015 | 178 | 1,015 | 918 | 97 | ||||||||||||||||||
| Telecommunication expense | 526 | 609 | (83 | ) | 609 | 572 | 37 | |||||||||||||||||
| ATM and debit card expense | 899 | 933 | (34 | ) | 933 | 1,201 | (268 | ) | ||||||||||||||||
| Director and committee fees | 1,064 | 940 | 124 | 940 | 859 | 81 | ||||||||||||||||||
| Other | 4,368 | 4,417 | (49 | ) | 4,417 | 4,509 | (92 | ) | ||||||||||||||||
| Total noninterest expense | $ | 48,382 | $ | 46,380 | $ | 2,002 | $ | 46,380 | $ | 42,594 | $ | 3,786 | ||||||||||||
Employee Compensation and Benefits
. Salaries and employee benefits are the largest component of noninterest expense and include payroll expense, the cost of incentive compensation, benefit plans, health insurance and payroll taxes.Software and Texas Leadership Bank, as well as additional software purchases required to support our expansion and to build the infrastructure needed for growth in the volume of our business.
FDIC Insurance Assessment Fees.
Telecommunication Expense. Telecommunication expense increased from $676,000 for the year ended December 31, 2016, compared2019, to $2.1 million$864,000 in 2020, an increase of $188,000, or 27.8%. The increase resulted primarily as a result of the beginning phase of a project designed to aggregate utility expenses for the year ended December 31, 2015, was primarily due to cancellationpurpose of services for a third-party investment advisory firm related to our Wealth Management Group during the period, which was partially offset by increases in legal feescost control through bundled contracts and audit fees.
ATM and Debit Card Expense.
We pay processing fees related to the activity of our customers’ ATM and debit card usage. ATM and debit card expenses wereOther
. This category includes operating and administrative expenses, such as stock option expense, expenses and losses related to repossession of assets, small hardware and software purchases, expense of the value of stock appreciation rights, losses incurred on problem assets, losses on sale of other real estate owned and other assets, other real estate owned expense and write-downs, business development expenses (i.e., travel and entertainment, charitable contributions and club memberships), insurance and security expenses. Other noninterest expense61
in expenses such as office suppliesrelated to meals and loan filing expenses. Other noninterest expense decreased $92,000, or 2.04%,entertainment, traveling, and training and education in 2016 compared to 2015, due primarily to no acquisition-related expenses during 2016, as well as lower losses sustained.
Income Tax Expense
The amount of income tax expense we incur is influenced by the amounts of our pre-tax income, tax-exempt income and other nondeductible expenses. Deferred tax assets and liabilities are reflected at current income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
For the years ended December 31, 2017, 2016,2020 and 2015,2019, income tax expense totaled $8.2 million, including the one-time deferred tax asset adjustment of $1.7 million described above, $4.7$5.9 million and $4.4$5.8 million, respectively. The increase in income tax expense was primarily due to an increase in net earnings before taxes of $1.2 million. Our effective tax raterates for the years ended December 31, 2017, 20162020 and 2015 was 36.3%, 28.0%,2019 were 17.70% and 30.1%18.02%, respectively.
Financial Condition
Our total assets increased $134.3$422.4 million, or 7.3%18.2%, from $1.8$2.32 billion as of December 31, 20162019 to $2.0$2.74 billion as of December 31, 2017.2020. Our asset growth in 2017 was primarily due to organic growthincreases in total gross loans of $160.4 million and cash and cash equivalents of $261.1 million. The increase in loans resulted largely from our traditional East Texas marketparticipation in the PPP loan program, and our Central Texasthe increase in cash and Dallas/Fort Worth metroplex markets, includingcash equivalents resulted largely from the opening of
Loan Portfolio
Our primary source of income is derived through interest earned on loans to small- to medium-sized businesses, commercial companies, professionals and individuals located in our primary market areas. A substantial portion of our loan portfolio consists of commercial and industrial loans and real estate loans secured by commercial real estate properties located in our primary market areas. Our loan portfolio represents the highest yielding component of our earning asset base.
Our loan portfolio is the largest category of our earning assets. As of December 31, 2017,2020, total loans excluding deferred loan fees,held for investment were $1.4$1.87 billion, an increase of $115.6$160.4 million, or 9.3%9.4%, compared to $1.2 billion as offrom the December 31, 2016. The increase during 2017 was primarily due to continued organic growth in our primary market areas and opening2019 balance of new locations in Austin and Fort Worth, Texas. Total loans as of December 31, 2016 represented an increase of $176.5 million, or 16.5%, compared to $1.1 billion as of December 31, 2015. The increase during 2016 was primarily due to our continued organic growth in our primary market areas and the maturation of newer locations opened or acquired in the Central Texas and Dallas/Fort Worth metroplex markets.$1.71 billion. In addition to these amounts, $1.9 million, $2.6$5.5 million and $3.9$2.4 million in loans were classified as held for sale as of December 31, 2017, 20162020 and 2015,December 31, 2019, respectively.
The increase in gross loans during the period included outstanding PPP loan balances of $139.8 million, to 1,452 borrowers, as of December 31, 2020. Excluding the outstanding balance of PPP loans, gross loans increased 1.2%, or $20.6 million, from December 31, 2019, which was primarily due to period-end increases in our mortgage warehouse loan balances.
Total loans, excluding loansthose held for sale, as a percentage of deposits, were 81.1%, 78.9%81.6% and 72.8%87.2% as of December 31, 2017, 20162020 and 2015,December 31, 2019, respectively. Total loans, excluding loansthose held for sale, as a percentage of total assets, were 69.3%, 68.0%68.1% and 63.4%73.6% as of December 31, 2017, 20162020 and 2015,December 31, 2019, respectively.
62
The following table summarizes our loan portfolio by type of loan as of the dates indicated:
|
| As of December 31, |
| |||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
| |||||||||||||||||||||||||
(dollars in thousands) |
| Amount |
|
| Percent |
|
| Amount |
|
| Percent |
|
| Amount |
|
| Percent |
|
| Amount |
|
| Percent |
|
| Amount |
|
| Percent |
| ||||||||||
Commercial and industrial |
| $ | 445,771 |
|
|
| 23.88 | % |
| $ | 279,583 |
|
|
| 16.38 | % |
| $ | 261,779 |
|
|
| 15.77 | % |
| $ | 197,508 |
|
|
| 14.53 | % |
| $ | 223,712 |
|
|
| 17.98 | % |
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development |
|
| 270,407 |
|
|
| 14.48 | % |
|
| 280,498 |
|
|
| 16.44 | % |
|
| 237,503 |
|
|
| 14.31 | % |
|
| 196,774 |
|
|
| 14.47 | % |
|
| 129,631 |
|
|
| 10.42 | % |
Commercial real estate |
|
| 594,216 |
|
|
| 31.83 | % |
|
| 567,360 |
|
|
| 33.25 | % |
|
| 582,519 |
|
|
| 35.10 | % |
|
| 418,137 |
|
|
| 30.76 | % |
|
| 368,077 |
|
|
| 29.59 | % |
Farmland |
|
| 78,508 |
|
|
| 4.21 | % |
|
| 57,476 |
|
|
| 3.37 | % |
|
| 67,845 |
|
|
| 4.09 | % |
|
| 59,023 |
|
|
| 4.34 | % |
|
| 62,366 |
|
|
| 5.01 | % |
1-4 family residential |
|
| 389,096 |
|
|
| 20.84 | % |
|
| 412,166 |
|
|
| 24.15 | % |
|
| 393,067 |
|
|
| 23.69 | % |
|
| 374,371 |
|
|
| 27.54 | % |
|
| 361,665 |
|
|
| 29.08 | % |
Multi-family residential |
|
| 21,701 |
|
|
| 1.16 | % |
|
| 37,379 |
|
|
| 2.19 | % |
|
| 38,386 |
|
|
| 2.31 | % |
|
| 36,574 |
|
|
| 2.69 | % |
|
| 26,079 |
|
|
| 2.10 | % |
Consumer and overdrafts |
|
| 51,386 |
|
|
| 2.75 | % |
|
| 53,574 |
|
|
| 3.14 | % |
|
| 55,159 |
|
|
| 3.33 | % |
|
| 51,561 |
|
|
| 3.79 | % |
|
| 53,494 |
|
|
| 4.30 | % |
Agricultural |
|
| 15,734 |
|
|
| 0.85 | % |
|
| 18,359 |
|
|
| 1.08 | % |
|
| 23,277 |
|
|
| 1.40 | % |
|
| 25,596 |
|
|
| 1.88 | % |
|
| 18,901 |
|
|
| 1.52 | % |
Total loans held for investment |
| $ | 1,866,819 |
|
|
| 100.00 | % |
| $ | 1,706,395 |
|
|
| 100.00 | % |
| $ | 1,659,535 |
|
|
| 100.00 | % |
| $ | 1,359,544 |
|
|
| 100.00 | % |
| $ | 1,243,925 |
|
|
| 100.00 | % |
Total loans held for sale |
| $ | 5,542 |
|
|
|
|
|
| $ | 2,368 |
|
|
|
|
|
| $ | 1,795 |
|
|
|
|
|
| $ | 1,896 |
|
|
|
|
|
| $ | 2,563 |
|
|
|
|
|
| As of December 31, | ||||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||
| Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | 197,508 | 14.53 | % | $ | 223,712 | 17.98 | % | $ | 181,716 | 17.02 | % | $ | 139,258 | 17.71 | % | $ | 140,207 | 20.10 | % | ||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||||
| Construction and development | 196,774 | 14.47 | % | 129,631 | 10.42 | % | 122,904 | 11.51 | % | 77,760 | 9.89 | % | 57,483 | 8.24 | % | |||||||||||||||||||
| Commercial real estate | 418,137 | 30.76 | % | 368,077 | 29.59 | % | 301,910 | 28.29 | % | 205,648 | 26.15 | % | 170,500 | 24.45 | % | |||||||||||||||||||
| Farmland | 59,023 | 4.34 | % | 62,366 | 5.01 | % | 47,668 | 4.47 | % | 34,131 | 4.34 | % | 25,850 | 3.71 | % | |||||||||||||||||||
| 1-4 family residential | 374,371 | 27.54 | % | 361,665 | 29.07 | % | 312,306 | 29.26 | % | 245,889 | 31.26 | % | 227,491 | 32.62 | % | |||||||||||||||||||
| Multi-family residential | 36,574 | 2.69 | % | 26,079 | 2.10 | % | 30,395 | 2.85 | % | 24,075 | 3.06 | % | 16,301 | 2.34 | % | |||||||||||||||||||
| Consumer and overdrafts | 51,561 | 3.79 | % | 53,494 | 4.30 | % | 50,954 | 4.77 | % | 44,439 | 5.65 | % | 44,900 | 6.44 | % | |||||||||||||||||||
| Agricultural | 25,596 | 1.88 | % | 18,901 | 1.52 | % | 19,524 | 1.83 | % | 15,319 | 1.95 | % | 14,672 | 2.10 | % | |||||||||||||||||||
| Total loans held for investment | $ | 1,359,544 | 100.00 | % | $ | 1,243,925 | 100.00 | % | $ | 1,067,377 | 100.00 | % | $ | 786,519 | 100.00 | % | $ | 697,404 | 100.00 | % | ||||||||||||||
| Total loans held for sale | $ | 1,896 | $ | 2,563 | $ | 3,867 | $ | 3,915 | $ | 7,118 | ||||||||||||||||||||||||
Commercial and Industrial Loans
. Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and effectively. These loans are primarily made based on the identified cash flows of the borrower, and secondarily, on the underlying collateral provided by the borrower. Most commercial and industrial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and generally include personal guarantees. Commercial and industrial loansConstruction and Development
. Construction and land development loans are comprised of loans to fund construction, land acquisition and land development construction. The properties securing the portfolio are located throughout Texas and are generally diverse in terms of type. Construction and development loans1-4 Family Residential
. Our 1-4 family residential loan portfolio is comprised of loans secured by 1-4 family homes, which are both owner occupied and investor owned. Our 1-4 family residential loans have a relatively small balance spreadCommercial Real Estate
. Commercial real estate loans are underwritten primarily based on projected cash flows and, secondarily, as loans secured by real estate. These loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the portfolio are located primarily within our markets and are generally diverse in terms of type. This diversity helps reduce our exposure to adverse economic events that affect any single industry. Commercial real estate loans increasedOther Loan Categories
. Other categories of loans included in our loan portfolio include farmland and agricultural loans made to farmers and ranchers relating to their operations, multi-family residential loans and consumer loans. None of these categories of loans represents a significant portion of our total loan portfolio.63
Contractual Loan Maturities.
The contractual maturity ranges of loans in our loan portfolio and the amount of such loans with fixed and floating interest rates in each maturity range as of
|
| As of December 31, 2020 |
| |||||||||||||
(dollars in thousands) |
| One Year or Less |
|
| One Through Five Years |
|
| After Five Years |
|
| Total |
| ||||
Commercial and industrial |
| $ | 191,495 |
|
| $ | 218,258 |
|
| $ | 36,018 |
|
| $ | 445,771 |
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development |
|
| 142,570 |
|
|
| 35,749 |
|
|
| 92,088 |
|
|
| 270,407 |
|
Commercial real estate |
|
| 35,171 |
|
|
| 133,545 |
|
|
| 425,500 |
|
|
| 594,216 |
|
Farmland |
|
| 13,634 |
|
|
| 10,689 |
|
|
| 54,185 |
|
|
| 78,508 |
|
1-4 family residential |
|
| 34,312 |
|
|
| 31,178 |
|
|
| 323,606 |
|
|
| 389,096 |
|
Multi-family residential |
|
| 221 |
|
|
| 8,389 |
|
|
| 13,091 |
|
|
| 21,701 |
|
Consumer |
|
| 13,525 |
|
|
| 34,841 |
|
|
| 3,020 |
|
|
| 51,386 |
|
Agricultural |
|
| 10,504 |
|
|
| 4,942 |
|
|
| 288 |
|
|
| 15,734 |
|
Total loans |
| $ | 441,432 |
|
| $ | 477,591 |
|
| $ | 947,796 |
|
| $ | 1,866,819 |
|
Amounts with fixed rates |
| $ | 295,371 |
|
| $ | 380,265 |
|
| $ | 51,144 |
|
| $ | 726,780 |
|
Amounts with floating rates |
| $ | 146,061 |
|
| $ | 97,326 |
|
| $ | 896,652 |
|
| $ | 1,140,039 |
|
|
| As of December 31, 2019 |
| |||||||||||||
(dollars in thousands) |
| One Year or Less |
|
| One Through Five Years |
|
| After Five Years |
|
| Total |
| ||||
Commercial and industrial |
| $ | 175,896 |
|
| $ | 70,188 |
|
| $ | 33,499 |
|
| $ | 279,583 |
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development |
|
| 89,386 |
|
|
| 96,169 |
|
|
| 94,943 |
|
|
| 280,498 |
|
Commercial real estate |
|
| 44,172 |
|
|
| 105,648 |
|
|
| 417,540 |
|
|
| 567,360 |
|
Farmland |
|
| 7,367 |
|
|
| 7,194 |
|
|
| 42,915 |
|
|
| 57,476 |
|
1-4 family residential |
|
| 46,099 |
|
|
| 25,137 |
|
|
| 340,930 |
|
|
| 412,166 |
|
Multi-family residential |
|
| 18,487 |
|
|
| 4,186 |
|
|
| 14,706 |
|
|
| 37,379 |
|
Consumer |
|
| 15,450 |
|
|
| 35,238 |
|
|
| 2,886 |
|
|
| 53,574 |
|
Agricultural |
|
| 11,834 |
|
|
| 6,463 |
|
|
| 62 |
|
|
| 18,359 |
|
Total loans |
| $ | 408,691 |
|
| $ | 350,223 |
|
| $ | 947,481 |
|
| $ | 1,706,395 |
|
Amounts with fixed rates |
| $ | 281,989 |
|
| $ | 265,377 |
|
| $ | 58,863 |
|
| $ | 606,229 |
|
Amounts with floating rates |
| $ | 126,702 |
|
| $ | 84,846 |
|
| $ | 888,618 |
|
| $ | 1,100,166 |
|
| As of December 31, 2017 | |||||||||||||||
One Year or Less | One Through Five Years | After Five Years | Total | ||||||||||||
| (Dollars in thousands) | |||||||||||||||
| Commercial and industrial | $ | 106,487 | $ | 62,367 | $ | 28,654 | $ | 197,508 | |||||||
| Real estate: | |||||||||||||||
| Construction and development | 70,911 | 57,123 | 68,740 | 196,774 | |||||||||||
| Commercial real estate | 15,955 | 65,600 | 336,582 | 418,137 | |||||||||||
| Farmland | 5,049 | 4,478 | 49,496 | 59,023 | |||||||||||
| 1-4 family residential | 24,514 | 26,653 | 323,204 | 374,371 | |||||||||||
| Multi-family residential | 20,385 | 8,021 | 8,168 | 36,574 | |||||||||||
| Consumer | 15,494 | 33,602 | 2,465 | 51,561 | |||||||||||
| Agricultural | 15,500 | 10,018 | 78 | 25,596 | |||||||||||
| Total loans | $ | 274,295 | $ | 267,862 | $ | 817,387 | $ | 1,359,544 | |||||||
| Amounts with fixed rates | $ | 212,237 | $ | 204,396 | $ | 69,607 | $ | 486,240 | |||||||
| Amounts with floating rates | $ | 62,058 | $ | 63,466 | $ | 747,780 | $ | 873,304 | |||||||
| As of December 31, 2016 | |||||||||||||||
One Year or Less | One Through Five Years | After Five Years | Total | ||||||||||||
| (Dollars in thousands) | |||||||||||||||
| Commercial and industrial | $ | 102,728 | $ | 89,827 | $ | 31,157 | $ | 223,712 | |||||||
| Real estate: | |||||||||||||||
| Construction and development | 70,910 | 29,553 | 29,168 | 129,631 | |||||||||||
| Commercial real estate | 14,124 | 59,389 | 294,564 | 368,077 | |||||||||||
| Farmland | 15,948 | 2,796 | 43,622 | 62,366 | |||||||||||
| 1-4 family residential | 30,211 | 22,810 | 308,644 | 361,665 | |||||||||||
| Multi-family residential | 757 | 8,515 | 16,807 | 26,079 | |||||||||||
| Consumer | 16,911 | 33,398 | 3,185 | 53,494 | |||||||||||
| Agricultural | 11,177 | 7,627 | 97 | 18,901 | |||||||||||
| Total loans | $ | 262,766 | $ | 253,915 | $ | 727,244 | $ | 1,243,925 | |||||||
| Amounts with fixed rates | $ | 196,734 | $ | 195,603 | $ | 82,967 | $ | 475,304 | |||||||
| Amounts with floating rates | $ | 66,032 | $ | 58,312 | $ | 644,277 | $ | 768,621 | |||||||
| As of December 31, 2015 | |||||||||||||||
One Year or Less | One Through Five Years | After Five Years | Total | ||||||||||||
| (Dollars in thousands) | |||||||||||||||
| Commercial and industrial | $ | 85,947 | $ | 58,319 | $ | 37,450 | $ | 181,716 | |||||||
| Real estate: | |||||||||||||||
| Construction and development | 52,613 | 33,660 | 36,631 | 122,904 | |||||||||||
| Commercial real estate | 15,514 | 47,638 | 238,758 | 301,910 | |||||||||||
| Farmland | 9,845 | 5,276 | 32,547 | 47,668 | |||||||||||
| 1-4 family residential | 15,982 | 28,851 | 267,473 | 312,306 | |||||||||||
| Multi-family residential | 1,233 | 8,697 | 20,465 | 30,395 | |||||||||||
| Consumer | 15,313 | 32,607 | 3,034 | 50,954 | |||||||||||
| Agricultural | 12,000 | 7,422 | 102 | 19,524 | |||||||||||
| Total loans | $ | 208,447 | $ | 222,470 | $ | 636,460 | $ | 1,067,377 | |||||||
| Amounts with fixed rates | $ | 160,894 | $ | 167,579 | $ | 86,755 | $ | 415,228 | |||||||
| Amounts with floating rates | $ | 47,553 | $ | 54,891 | $ | 549,705 | $ | 652,149 | |||||||
Nonperforming Assets
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. In general, we place loans on nonaccrual status when they become 90 days past due. We also place loans on nonaccrual status if they are less than 90 days past due if the collection of principal or interest is in doubt. When interest accrual is discontinued, all unpaid accrued interest is reversed from income. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are, in management’s opinion, reasonably assured.
We believe our conservative lending approach and focused management of nonperforming assets has resulted in sound asset quality and timely resolution of problem assets. We have several procedures in place to assist us in maintaining the overall quality of our loan portfolio. We have established underwriting guidelines to be followed by our bankers, and we also monitor our delinquency levels for any negative or adverse trends. There can be no assurance, however, that our loan portfolio will not become subject to increasing pressures from deteriorating borrower credit due to general economic conditions.
64
We had $8.7$13.1 million in nonperforming assets as of December 31, 2017,2020, compared to $9.6 million and $4.2$12.3 million as of December 31, 2016 and 2015, respectively.2019. We had $4.0$12.7 million in nonperforming loans as of December 31, 2017,2020, compared to $4.4 million and $2.4$11.3 million as of December 31, 2016 and 2015, respectively. Our nonperforming assets and2019. The increase in nonperforming loans and assets resulted primarily from one SBA 7(a), partially guaranteed (75%) loan and one commercial loan, both of which were slightly decreased, by $917 and $405 respectively, as of December 31, 2017 compared to December 31, 2016, despite increases of 7.3% and 9.3%acquired in our June 2018 acquisition of Westbound Bank. To facilitate the workout of the SBA loan, we repurchased the guaranteed portion of the loan from a third party, resulting in an increased book balance of $3.1 million and a total assets and total loans, respectively, asbook balance, which remains 75% SBA guaranteed, of those same dates.$3.9 million. The $2.0increased book balance from the SBA loan of $3.1 million, combined with the commercial loan book balance of $1.1 million, comprises $4.2 million of the increase in our nonperforming loans from December 31, 20152019, which was partially offset by decreases in smaller dollar loans. Three SBA partially guaranteed (75%) loans relating to loans acquired from Westbound Bank, including the $3.1 million repurchased portion, are included in nonaccrual loans at December 31, 2016 primarily relates2020 and had combined book balances of $8.7 million. These loans were internally identified as problem assets prior to the downgradeCOVID-19 and are properly reserved using our CECL methodology. Management continues to work toward a satisfactory resolution for these three loans. Excluding these partially guaranteed SBA loans, non-performing assets as a percentage of one loan relationship in the amount of $1.2 million that was previously classified as accrual in accordance with the terms of our loan policy. The increase in repossessed assets owned fromtotal loans at December 31, 2015 to December 31, 2016 primarily relates to one loan in the amount of $5.3 million. During the years ending December, 31 2016 and 2017, portions of the underlying repossessed assets related to this one loan relationship were sold for $1.8 million and $1.1 million, respectively.
The following table presents information regarding nonperforming assets at the dates indicated:
|
| As of December 31, |
| |||||||||||||||||
(dollars in thousands) |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
| |||||
Nonaccrual loans |
| $ | 12,705 |
|
| $ | 11,262 |
|
| $ | 5,891 |
|
| $ | 4,004 |
|
| $ | 4,409 |
|
Accruing loans 90 or more days past due |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total nonperforming loans |
|
| 12,705 |
|
|
| 11,262 |
|
|
| 5,891 |
|
|
| 4,004 |
|
|
| 4,409 |
|
Other real estate owned: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate, construction and development, and farmland |
|
| — |
|
|
| 105 |
|
|
| 34 |
|
|
| 758 |
|
|
| 1,074 |
|
Residential real estate |
|
| 404 |
|
|
| 498 |
|
|
| 717 |
|
|
| 1,486 |
|
|
| 618 |
|
Total other real estate owned |
|
| 404 |
|
|
| 603 |
|
|
| 751 |
|
|
| 2,244 |
|
|
| 1,692 |
|
Repossessed assets owned |
|
| 6 |
|
|
| 392 |
|
|
| 971 |
|
|
| 2,466 |
|
|
| 3,530 |
|
Total other assets owned |
|
| 410 |
|
|
| 995 |
|
|
| 1,722 |
|
|
| 4,710 |
|
|
| 5,222 |
|
Total nonperforming assets |
| $ | 13,115 |
|
| $ | 12,257 |
|
| $ | 7,613 |
|
| $ | 8,714 |
|
| $ | 9,631 |
|
Restructured loans-nonaccrual |
| $ | 90 |
|
| $ | 101 |
|
| $ | 335 |
|
| $ | — |
|
| $ | 43 |
|
Restructured loans-accruing |
| $ | 9,626 |
|
| $ | 7,240 |
|
| $ | 861 |
|
| $ | 657 |
|
| $ | 462 |
|
Ratio of nonaccrual loans to total loans(1) |
|
| 0.68 | % |
|
| 0.66 | % |
|
| 0.35 | % |
|
| 0.29 | % |
|
| 0.35 | % |
Ratio of nonperforming assets to total assets |
|
| 0.48 | % |
|
| 0.53 | % |
|
| 0.34 | % |
|
| 0.44 | % |
|
| 0.53 | % |
|
| As of December 31, |
| |||||||||||||||||
(in thousands) |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
| |||||
Nonaccrual loans by category: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
| $ | 27 |
|
| $ | 46 |
|
| $ | 366 |
|
| $ | 77 |
|
| $ | 82 |
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,825 |
|
Commercial real estate |
|
| 10,604 |
|
|
| 6,860 |
|
|
| 3,700 |
|
|
| 1,422 |
|
|
| 415 |
|
Farmland |
|
| 115 |
|
|
| 182 |
|
|
| 140 |
|
|
| 163 |
|
|
| 176 |
|
1-4 family residential |
|
| 1,667 |
|
|
| 3,853 |
|
|
| 1,567 |
|
|
| 1,937 |
|
|
| 1,699 |
|
Multi-family residential |
|
| — |
|
|
| — |
|
|
| 0 |
|
|
| 217 |
|
|
| 5 |
|
Consumer |
|
| 212 |
|
|
| 279 |
|
|
| 66 |
|
|
| 138 |
|
|
| 192 |
|
Agricultural |
|
| 80 |
|
|
| 42 |
|
|
| 52 |
|
|
| 50 |
|
|
| 15 |
|
Total |
| $ | 12,705 |
|
| $ | 11,262 |
|
| $ | 5,891 |
|
| $ | 4,004 |
|
| $ | 4,409 |
|
| As of December 31, | |||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||
| Nonaccrual loans | $ | 4,004 | $ | 4,409 | $ | 2,431 | $ | 4,077 | $ | 7,233 | |||||||||
| Accruing loans 90 or more days past due | — | — | — | — | — | ||||||||||||||
| Total nonperforming loans | 4,004 | 4,409 | 2,431 | 4,077 | 7,233 | ||||||||||||||
| Other real estate owned: | |||||||||||||||||||
| Commercial real estate, construction and development, and farmland | 758 | 1,074 | 1,075 | 70 | 604 | ||||||||||||||
| Residential real estate | 1,486 | 618 | 618 | 742 | 758 | ||||||||||||||
| Total other real estate owned | 2,244 | 1,692 | 1,693 | 812 | 1,362 | ||||||||||||||
| Repossessed assets owned | 2,466 | 3,530 | 116 | 106 | 236 | ||||||||||||||
| Total other assets owned | 4,710 | 5,222 | 1,809 | 918 | 1,598 | ||||||||||||||
| Total nonperforming assets | $ | 8,714 | $ | 9,631 | $ | 4,240 | $ | 4,995 | $ | 8,831 | |||||||||
| Restructured loans-nonaccrual | $ | — | $ | 43 | $ | 160 | $ | 685 | $ | 877 | |||||||||
| Restructured loans-accruing | $ | 657 | $ | 462 | $ | 3,541 | $ | 2,574 | $ | 1,422 | |||||||||
Ratio of nonperforming loans to total loans(1)(2) | 0.29 | % | 0.35 | % | 0.23 | % | 0.52 | % | 1.04 | % | |||||||||
| Ratio of nonperforming assets to total assets | 0.44 | % | 0.53 | % | 0.25 | % | 0.37 | % | 0.71 | % | |||||||||
| As of December 31, | |||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||
| Nonaccrual loans by category: | |||||||||||||||||||
| Commercial and industrial | $ | 77 | $ | 82 | $ | 118 | $ | 507 | $ | 707 | |||||||||
| Real estate: | |||||||||||||||||||
| Construction and development | — | 1,825 | — | — | 173 | ||||||||||||||
| Commercial real estate | 1,422 | 415 | 77 | 672 | 1,372 | ||||||||||||||
| Farmland | 163 | 176 | 169 | 184 | 692 | ||||||||||||||
| 1-4 family residential | 1,937 | 1,699 | 1,829 | 2,614 | 3,840 | ||||||||||||||
| Multi-family residential | 217 | 5 | — | — | — | ||||||||||||||
| Consumer | 138 | 192 | 238 | 99 | 307 | ||||||||||||||
| Agricultural | 50 | 15 | — | 1 | 142 | ||||||||||||||
| Total | $ | 4,004 | $ | 4,409 | $ | 2,431 | $ | 4,077 | $ | 7,233 | |||||||||
(1) | |
Excludes loans held for sale of $5.5 million, $2.4 million, $1.8 million, $1.9 million |
Potential Problem Loans
From a credit risk standpoint, we classify loans in one of five categories:risk ratings: pass, special mention, substandard, doubtful or loss. Within the pass category,rating, we classify loans into one of the following fourfive subcategories based on perceived credit risk, including repayment capacity and collateral security: superior, excellent, good, acceptable and acceptable.acceptable/watch. The classifications of loans reflect a judgment about the risks of default and loss associated with the loan. We review the ratings on credits monthly. Ratings are adjusted to reflect the degree of risk and loss that is believed
65
to be inherent in each credit as of each monthly reporting period. Our methodology is structured so that specific reserveACL allocations are increased in accordance with deterioration in credit quality (and a corresponding increase in risk and loss) or decreased in accordance with improvement in credit quality (and a corresponding decrease in risk and loss).
Credits rated special mention show clear signs of financial weaknesses or deterioration in creditworthiness; however, such concerns are not so pronounced that we generally expect to experience significant loss within the short-term. Such credits typically maintain the ability to perform within standard credit terms and credit exposure is not as prominent as credits with a lower rating.
Credits rated substandard are those in which the normal repayment of principal and interest may be, or has been, jeopardized by reason of adverse trends or developments of a financial, managerial, economic or political nature, or important weaknesses which exist in collateral. A protracted workout on these credits is a distinct possibility. Prompt corrective action is therefore required to reduce exposure and to assure that adequate remedial measures are taken by the borrower. Credit exposure becomes more likely in such credits and a serious evaluation of the secondary support to the credit is performed.
Credits rated as doubtful have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full questionable and there is a high probability of loss based on currently existing facts, conditions and values.
Credits rated as loss are charged-off. We have no expectation of the recovery of any payments in respect of credits rated as loss.
Loans that were modified for reasons related to the COVID-19 pandemic that are not currently required to pay, or are paying with interest only, are nevertheless considered performing so long as they are compliant with the terms of their modifications and are not classified as TDRs. Such loans are evaluated for classification, but the existence of a loan modification in accordance with the CARES Act does not necessarily result in an adverse classification.
Social distancing, stay-at-home orders and other measures as a result of COVID-19 have particularly affected the restaurant, hospitality, retail commercial real estate (CRE) and energy sectors. Excluding SBA partially guaranteed (75%) loans, the Bank has direct exposure, through total loan commitments with weighted average loan-to-values (“LTV”), as of December 31, 2020, of $26.4 million with 60.5% weighted average LTV to restaurants, $56.1 million with 51.5% weighted average LTV to retail CRE and $67.0 million with 56.5% weighted average LTV to hotel/hospitality borrowers. Many of the loans in these sectors were downgraded to pass-acceptable/watch or special mention risk ratings during the second quarter of 2020. Management will continue to closely monitor these borrowing relationships and work with borrowers to achieve positive outcomes, when necessary.
The following table summarizes the internal ratings of our performing loans and our nonaccrual loans by category as of:
|
| December 31, 2020 |
| |||||||||||||||||||||||||
(in thousands) |
| Pass |
|
| Special Mention |
|
| Substandard |
|
| Doubtful |
|
| Loss |
|
| Nonaccrual |
|
| Total |
| |||||||
Commercial and industrial |
| $ | 438,975 |
|
| $ | 5,829 |
|
| $ | 940 |
|
| $ | — |
|
| $ | — |
|
| $ | 27 |
|
| $ | 445,771 |
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development |
|
| 267,767 |
|
|
| 1,346 |
|
|
| 1,294 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 270,407 |
|
Commercial real estate |
|
| 550,724 |
|
|
| 13,280 |
|
|
| 19,608 |
|
|
| — |
|
|
| — |
|
|
| 10,604 |
|
|
| 594,216 |
|
Farmland |
|
| 78,229 |
|
|
| 35 |
|
|
| 129 |
|
|
| — |
|
|
| — |
|
|
| 115 |
|
|
| 78,508 |
|
1-4 family residential |
|
| 387,261 |
|
|
| 168 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,667 |
|
|
| 389,096 |
|
Multi-family residential |
|
| 21,701 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 21,701 |
|
Consumer and overdrafts |
|
| 51,059 |
|
|
| 115 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 212 |
|
|
| 51,386 |
|
Agricultural |
|
| 15,577 |
|
|
| 36 |
|
|
| 41 |
|
|
| — |
|
|
| — |
|
|
| 80 |
|
|
| 15,734 |
|
Total |
| $ | 1,811,293 |
|
| $ | 20,809 |
|
| $ | 22,012 |
|
| $ | — |
|
| $ | — |
|
| $ | 12,705 |
|
| $ | 1,866,819 |
|
66
The following table summarizes the internal ratings of our loans by category as of the dates indicated.of:
|
| December 31, 2019 |
| |||||||||||||||||||||
(in thousands) |
| Pass |
|
| Special Mention |
|
| Substandard |
|
| Doubtful |
|
| Loss |
|
| Total |
| ||||||
Commercial and industrial |
| $ | 279,217 |
|
| $ | 153 |
|
| $ | 213 |
|
| $ | — |
|
| $ | — |
|
| $ | 279,583 |
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development |
|
| 278,679 |
|
|
| 600 |
|
|
| 1,219 |
|
|
| — |
|
|
| — |
|
|
| 280,498 |
|
Commercial real estate |
|
| 548,662 |
|
|
| 1,071 |
|
|
| 17,627 |
|
|
| — |
|
|
| — |
|
|
| 567,360 |
|
Farmland |
|
| 57,152 |
|
|
| 91 |
|
|
| 233 |
|
|
| — |
|
|
| — |
|
|
| 57,476 |
|
1-4 family residential |
|
| 409,896 |
|
|
| 1,425 |
|
|
| 845 |
|
|
| — |
|
|
| — |
|
|
| 412,166 |
|
Multi-family residential |
|
| 37,379 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 37,379 |
|
Consumer and overdrafts |
|
| 53,327 |
|
|
| 192 |
|
|
| 55 |
|
|
| — |
|
|
| — |
|
|
| 53,574 |
|
Agricultural |
|
| 18,101 |
|
|
| 126 |
|
|
| 132 |
|
|
| — |
|
|
| — |
|
|
| 18,359 |
|
Total |
| $ | 1,682,413 |
|
| $ | 3,658 |
|
| $ | 20,324 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,706,395 |
|
| As of December 31, 2017 | |||||||||||||||||||||||
| Pass | Special Mention | Substandard | Doubtful | Loss | Total | ||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Commercial and industrial | $ | 196,890 | $ | 348 | $ | 270 | $ | — | $ | — | $ | 197,508 | |||||||||||
| Real estate: | |||||||||||||||||||||||
| Construction and development | 196,515 | 259 | — | — | — | 196,774 | |||||||||||||||||
| Commercial real estate | 412,488 | 1,135 | 4,514 | — | — | 418,137 | |||||||||||||||||
| Farmland | 58,623 | 226 | 174 | — | — | 59,023 | |||||||||||||||||
| 1-4 family residential | 373,154 | 442 | 775 | — | — | 374,371 | |||||||||||||||||
| Multi-family residential | 16,073 | 20,284 | 217 | — | — | 36,574 | |||||||||||||||||
| Consumer | 51,409 | 65 | 87 | — | — | 51,561 | |||||||||||||||||
| Agricultural | 24,650 | 454 | 492 | — | — | 25,596 | |||||||||||||||||
| Total | $ | 1,329,802 | $ | 23,213 | $ | 6,529 | $ | — | $ | — | $ | 1,359,544 | |||||||||||
| As of December 31, 2016 | |||||||||||||||||||||||
| Pass | Special Mention | Substandard | Doubtful | Loss | Total | ||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Commercial and industrial | $ | 218,690 | $ | 4,299 | $ | 706 | $ | 17 | $ | — | $ | 223,712 | |||||||||||
| Real estate: | |||||||||||||||||||||||
| Construction and development | 127,802 | 4 | 1,825 | — | — | 129,631 | |||||||||||||||||
| Commercial real estate | 360,591 | 2,021 | 5,465 | — | — | 368,077 | |||||||||||||||||
| Farmland | 61,717 | 248 | 401 | — | — | 62,366 | |||||||||||||||||
| 1-4 family residential | 352,196 | 4,311 | 5,121 | 37 | — | 361,665 | |||||||||||||||||
| Multi-family residential | 25,871 | — | 208 | — | — | 26,079 | |||||||||||||||||
| Consumer | 52,320 | 524 | 568 | 82 | — | 53,494 | |||||||||||||||||
| Agricultural | 17,965 | 478 | 458 | — | — | 18,901 | |||||||||||||||||
| Total | $ | 998,462 | $ | 11,885 | $ | 14,752 | $ | 136 | $ | — | $ | 1,020,213 | |||||||||||
| As of December 31, 2015 | |||||||||||||||||||||||
| Pass | Special Mention | Substandard | Doubtful | Loss | Total | ||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Commercial and industrial | $ | 169,577 | $ | 7,670 | $ | 4,356 | $ | 113 | $ | — | $ | 181,716 | |||||||||||
| Real estate: | |||||||||||||||||||||||
| Construction and development | |||||||||||||||||||||||
| Commercial real estate | 121,585 | 848 | 337 | 134 | — | 122,904 | |||||||||||||||||
| Farmland | 294,709 | 4,360 | 2,841 | — | — | 301,910 | |||||||||||||||||
| 1-4 family residential | 46,606 | 730 | 332 | — | — | 47,668 | |||||||||||||||||
| Multi-family residential | 300,690 | 5,448 | 6,168 | — | — | 312,306 | |||||||||||||||||
| Consumer | 28,932 | 1,192 | 271 | — | — | 30,395 | |||||||||||||||||
| Agricultural | 49,779 | 710 | 438 | 27 | — | 50,954 | |||||||||||||||||
| Total | 18,703 | 713 | 108 | — | — | 19,524 | |||||||||||||||||
| Commercial and industrial | $ | 861,004 | $ | 21,671 | $ | 14,851 | $ | 274 | $ | — | $ | 897,800 | |||||||||||
Allowance for LoanCredit Losses
We maintain an allowance for loancredit losses (“ACL”) that represents management’s best estimate of the loanappropriate level of losses and risks inherent in our loan portfolio.applicable financial assets under the current expected credit loss model. The amount of the allowance for loancredit losses should not be interpreted as an indication that charge-offs in future periods will necessarily occur in those amounts, or at all. The determination of the amount of allowance involves a high degree of judgement and subjectivity. Refer to Note 1 of the notes to the financial statements for discussion regarding our ACL methodologies for loans held for investment and available for sale securities.
For available for sale debt securities in an unrealized loss position, the Company evaluates the securities at each measurement date to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an ACL on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings through provision for credit loss expense. Upon adoption of ASC 326 on January 1, 2020, and as of December 31, 2020, the Company determined that all available for sale securities that experienced a decline in fair value below the amortized costs basis were due to noncredit-related factors, therefore no related ACL was recorded and there was no related provision expense recognized during the year ended December 31, 2020.
In determining the allowanceACL for loan losses,loans held for investment, we primarily estimate losses on specific loans, or groupssegments of loans with similar risk characteristics and where the probablepotential loss can be identified and reasonably determined. For loans that do not share similar risk characteristics with our existing segments, they are evaluated individually for an ACL. Our portfolio is segmented by regulatory call report codes, with additional segments for warehouse mortgage loans, SBA loans acquired from Westbound Bank, SBA loans originated by us, and SBA PPP loans. The segments are further disaggregated by internally assigned risk rating classifications. The balance of the allowance for loan lossesACL is based on internally assigned risk classifications of loans,determined using the current expected credit loss model, which considers historical loan loss rates, changes in the nature of our loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current economic factors and reasonable and supportable forecasts of the estimated impact of currentfuture economic conditions on certain historical loan loss rates. Please see “
In connection with the review of our loan portfolio, we consider risk elements attributable to particular loan types or categories in assessing the quality of individual loans. Some of the risk elements we consider include:
• | for commercial and industrial loans, the debt service coverage ratio (income from the business in excess of operating expenses compared to loan repayment requirements), the operating results of the commercial, industrial or professional enterprise, the borrower’s business, professional and financial ability and expertise, the specific risks and volatility of income and operating results typical for businesses in that category and the value, nature and marketability of collateral; |
• | for commercial mortgage loans and multifamily residential loans, the debt service coverage ratio, operating results of the owner in the case of owner occupied properties, the loan to value ratio, the age and condition of the collateral and the volatility of income, property value and future operating results typical of properties of that type; |
67
• | for 1-4 family residential mortgage loans, the borrower’s ability to repay the loan, including a consideration of the debt to income ratio and employment and income stability, the loan-to-value ratio, and the age, condition and marketability of the collateral; and |
• | for construction and development loans, the perceived feasibility of the project including the ability to sell developed lots or improvements constructed for resale or the ability to lease property constructed for lease, the quality and nature of contracts for presale or prelease, if any, experience and ability of the developer and loan to value ratio. |
As of December 31, 2017, our2020, the allowance for loancredit losses totaled $12.9$33.6 million, or 0.95%1.80%, of total loans.loans, excluding those held for sale, and totaled 1.95%, excluding PPP loans and loans held for sale. As of December 31, 2016, our allowance for loan losses totaled $11.5 million, or 0.92%, of total loans. As of December 31, 2015,2019, the allowance for loan losses totaled $9.3$16.2 million, or 0.87%0.95%, of total loans.
The following table presents, as of and for the periods indicated, an analysis of the allowance for loancredit losses and other related data:
|
| As of and for the Years Ended December 31, |
| |||||||||||||||||
(dollars in thousands) |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
| |||||
Average loans outstanding(1) |
| $ | 1,872,914 |
|
| $ | 1,689,108 |
|
| $ | 1,524,792 |
|
| $ | 1,283,253 |
|
| $ | 1,179,938 |
|
Gross loans outstanding at end of period(2) |
| $ | 1,866,819 |
|
| $ | 1,706,395 |
|
| $ | 1,659,535 |
|
| $ | 1,359,544 |
|
| $ | 1,243,925 |
|
Allowance for loan losses at beginning of the period |
|
| 16,202 |
|
|
| 14,651 |
|
|
| 12,859 |
|
|
| 11,484 |
|
|
| 9,263 |
|
Impact of adopting ASC 326 |
|
| 4,548 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Provision for loan losses |
|
| 13,200 |
|
|
| 1,250 |
|
|
| 2,250 |
|
|
| 2,850 |
|
|
| 3,640 |
|
Charge offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
| 68 |
|
|
| 86 |
|
|
| 367 |
|
|
| 1,080 |
|
|
| 1,213 |
|
Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9 |
|
Commercial real estate |
|
| — |
|
|
| — |
|
|
| 33 |
|
|
| 84 |
|
|
| — |
|
1-4 family residential |
|
| 68 |
|
|
| 14 |
|
|
| 93 |
|
|
| 543 |
|
|
| 71 |
|
Consumer |
|
| 155 |
|
|
| 72 |
|
|
| 254 |
|
|
| 344 |
|
|
| 269 |
|
Agriculture |
|
| 18 |
|
|
| 89 |
|
|
| 2 |
|
|
| 242 |
|
|
| — |
|
Overdrafts |
|
| 234 |
|
|
| 192 |
|
|
| 169 |
|
|
| 165 |
|
|
| 200 |
|
Total charge-offs |
|
| 543 |
|
|
| 453 |
|
|
| 918 |
|
|
| 2,458 |
|
|
| 1,762 |
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
| 101 |
|
|
| 508 |
|
|
| 111 |
|
|
| 797 |
|
|
| 17 |
|
Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4 |
|
Commercial real estate |
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
1-4 family residential |
|
| 2 |
|
|
| 3 |
|
|
| 135 |
|
|
| 23 |
|
|
| 75 |
|
Consumer |
|
| 37 |
|
|
| 111 |
|
|
| 90 |
|
|
| 108 |
|
|
| 121 |
|
Agriculture |
|
| 20 |
|
|
| 89 |
|
|
| 65 |
|
|
| — |
|
|
| — |
|
Overdrafts |
|
| 51 |
|
|
| 42 |
|
|
| 58 |
|
|
| 55 |
|
|
| 126 |
|
Total recoveries |
|
| 212 |
|
|
| 754 |
|
|
| 460 |
|
|
| 983 |
|
|
| 343 |
|
Net (recoveries) charge-offs |
|
| 331 |
|
|
| (301 | ) |
|
| 458 |
|
|
| 1,475 |
|
|
| 1,419 |
|
Allowance for loan losses at end of period |
| $ | 33,619 |
|
| $ | 16,202 |
|
| $ | 14,651 |
|
| $ | 12,859 |
|
| $ | 11,484 |
|
Ratio of allowance to end of period loans(2) |
|
| 1.80 | % |
|
| 0.95 | % |
|
| 0.88 | % |
|
| 0.95 | % |
|
| 0.92 | % |
Ratio of net (recoveries) charge-offs to average loans(1) |
|
| 0.02 | % |
|
| -0.02 | % |
|
| 0.03 | % |
|
| 0.11 | % |
|
| 0.12 | % |
| As of December 31, | |||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||
Average loans outstanding(1) | $ | 1,283,253 | $ | 1,179,938 | $ | 991,889 | $ | 738,539 | $ | 659,334 | |||||||||
Gross loans outstanding at end of period(2) | $ | 1,359,544 | $ | 1,243,925 | $ | 1,067,377 | $ | 786,519 | $ | 697,404 | |||||||||
| Allowance for loan losses at beginning of the period | 11,484 | 9,263 | 7,721 | 7,093 | 6,354 | ||||||||||||||
| Provision for loan losses | 2,850 | 3,640 | 2,175 | 1,322 | 1,745 | ||||||||||||||
| Charge offs: | |||||||||||||||||||
| Commercial and industrial | 1,080 | 1,213 | 192 | 241 | 326 | ||||||||||||||
| Real Estate: | |||||||||||||||||||
| Construction and development | — | 9 | 6 | 14 | 37 | ||||||||||||||
| Commercial real estate | 84 | — | 53 | 27 | 112 | ||||||||||||||
| Farmland | — | — | — | 96 | — | ||||||||||||||
| 1-4 family residential | 543 | 71 | 215 | 163 | 165 | ||||||||||||||
| Multi-family residential | — | — | — | — | — | ||||||||||||||
| Consumer | 344 | 269 | 219 | 178 | 300 | ||||||||||||||
| Agriculture | 242 | — | 1 | — | 8 | ||||||||||||||
| Overdrafts | 165 | 200 | 227 | 233 | 259 | ||||||||||||||
| Total charge-offs | 2,458 | 1,762 | 913 | 952 | 1,207 | ||||||||||||||
| Recoveries: | |||||||||||||||||||
| Commercial and industrial | 797 | 17 | 20 | 38 | 20 | ||||||||||||||
| Real Estate: | |||||||||||||||||||
| Construction and development | — | 4 | — | 4 | 1 | ||||||||||||||
| Commercial real estate | — | — | — | 1 | 11 | ||||||||||||||
| Farmland | — | — | 96 | — | — | ||||||||||||||
| 1-4 family residential | 23 | 75 | 8 | 1 | 36 | ||||||||||||||
| Multi-family residential | — | — | — | — | — | ||||||||||||||
| Consumer | 108 | 121 | 50 | 90 | 86 | ||||||||||||||
| Agriculture | — | — | 1 | 20 | 6 | ||||||||||||||
| Overdrafts | 55 | 126 | 105 | 104 | 41 | ||||||||||||||
| Total recoveries | 983 | 343 | 280 | 258 | 201 | ||||||||||||||
| Net charge-offs | 1,475 | 1,419 | 633 | 694 | 1,006 | ||||||||||||||
| Allowance for loan losses at end of period | $ | 12,859 | $ | 11,484 | $ | 9,263 | $ | 7,721 | $ | 7,093 | |||||||||
Ratio of allowance to end of period loans(2) | 0.95 | % | 0.92 | % | 0.87 | % | 0.98 | % | 1.02 | % | |||||||||
Ratio of net charge-offs to average loans(1) | 0.11 | % | 0.12 | % | 0.06 | % | 0.09 | % | 0.15 | % | |||||||||
(1) | |
Includes average outstanding balances of loans held for sale of $6.0 million, $2.7 million, $1.7 million, |
(2) | |
Excludes loans held for sale of $5.5 million, $2.4 million, $1.8 million, $1.9 million |
68
We believe the successful execution of our expansion strategy through organic growth and strategic acquisitions is generally demonstrated by the upward trend in loan balances from December 31, 20132016 to December 31, 2017.2020. Loan balances, excluding loans held for sale, increased from $697.4 million as of December 31, 2013, to $1.36$1.24 billion as of December 31, 2017.2016, to $1.87 billion as of December 31, 2020. Total loans excluding PPP loans and loans held for sale were $1.73 billion as of December 31, 2020. Net charge-offs have been minimal, representing on average 0.11%0.05% of average loan balances during the same period.
Although we believe that we have established our allowance for loancredit losses in accordance with GAAP and that the allowance for loancredit losses was adequate to provide for known and inherent losses in the portfolio at all times shown above, future provisions for loan losses will be subject to ongoing evaluations of the risks in our loan portfolio. If our primary market areas experience economic declines, if asset quality deteriorates or if we are successful in growing the size of our loan portfolio, our allowance could become inadequate and material additional provisions for loan losses could be required.
The following table shows the allocation of the allowance for loancredit losses among loan categories and certain other information as of the dates indicated. The allocation of the allowance for loancredit losses as shown in the
|
| As of December 31, |
| |||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
| |||||||||||||||||||||||||
(dollars in thousands) |
| Amount |
|
| Percent to Total |
|
| Amount |
|
| Percent to Total |
|
| Amount |
|
| Percent to Total |
|
| Amount |
|
| Percent to Total |
|
| Amount |
|
| Percent to Total |
| ||||||||||
Commercial and industrial |
| $ | 4,033 |
|
|
| 12.00 | % |
| $ | 2,056 |
|
|
| 12.69 | % |
| $ | 1,751 |
|
|
| 11.96 | % |
| $ | 1,581 |
|
|
| 12.29 | % |
| $ | 1,592 |
|
|
| 13.86 | % |
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development |
|
| 4,735 |
|
|
| 14.08 | % |
|
| 2,378 |
|
|
| 14.68 | % |
|
| 1,920 |
|
|
| 13.10 | % |
|
| 1,724 |
|
|
| 13.41 | % |
|
| 1,161 |
|
|
| 10.11 | % |
Commercial real estate |
|
| 15,780 |
|
|
| 46.94 | % |
|
| 6,853 |
|
|
| 42.30 | % |
|
| 6,025 |
|
|
| 41.12 | % |
|
| 4,585 |
|
|
| 35.66 | % |
|
| 3,264 |
|
|
| 28.42 | % |
Farmland |
|
| 1,220 |
|
|
| 3.63 | % |
|
| 570 |
|
|
| 3.52 | % |
|
| 643 |
|
|
| 4.39 | % |
|
| 523 |
|
|
| 4.07 | % |
|
| 482 |
|
|
| 4.20 | % |
1-4 family residential |
|
| 6,313 |
|
|
| 18.78 | % |
|
| 3,125 |
|
|
| 19.29 | % |
|
| 2,868 |
|
|
| 19.58 | % |
|
| 3,022 |
|
|
| 23.50 | % |
|
| 3,960 |
|
|
| 34.48 | % |
Multi-family residential |
|
| 363 |
|
|
| 1.08 | % |
|
| 409 |
|
|
| 2.52 | % |
|
| 631 |
|
|
| 4.31 | % |
|
| 629 |
|
|
| 4.89 | % |
|
| 281 |
|
|
| 2.45 | % |
Total real estate |
|
| 28,411 |
|
|
| 84.51 | % |
|
| 13,335 |
|
|
| 82.31 | % |
|
| 12,087 |
|
|
| 82.50 | % |
|
| 10,483 |
|
|
| 81.53 | % |
|
| 9,148 |
|
|
| 79.66 | % |
Consumer and overdrafts |
|
| 936 |
|
|
| 2.78 | % |
|
| 614 |
|
|
| 3.79 | % |
|
| 575 |
|
|
| 3.92 | % |
|
| 608 |
|
|
| 4.73 | % |
|
| 591 |
|
|
| 5.15 | % |
Agricultural |
|
| 239 |
|
|
| 0.71 | % |
|
| 197 |
|
|
| 1.21 | % |
|
| 238 |
|
|
| 1.62 | % |
|
| 187 |
|
|
| 1.45 | % |
|
| 153 |
|
|
| 1.33 | % |
Total allowance for loan losses |
| $ | 33,619 |
|
|
| 100.00 | % |
| $ | 16,202 |
|
|
| 100.00 | % |
| $ | 14,651 |
|
|
| 100.00 | % |
| $ | 12,859 |
|
|
| 100.00 | % |
| $ | 11,484 |
|
|
| 100.00 | % |
| As of December 31, | ||||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||
| Amount | Percent to Total | Amount | Percent to Total | Amount | Percent to Total | Amount | Percent to Total | Amount | Percent to Total | |||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | 1,581 | 12.29 | % | $ | 1,592 | 13.86 | % | $ | 1,878 | 20.27 | % | $ | 1,473 | 19.08 | % | $ | 1,503 | 21.19 | % | ||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||||
| Construction and development | 1,724 | 13.41 | % | 1,161 | 10.11 | % | 1,004 | 10.84 | % | 615 | 7.97 | % | 460 | 6.49 | % | |||||||||||||||||||
| Commercial real estate | 4,585 | 35.66 | % | 3,264 | 28.42 | % | 2,106 | 22.74 | % | 1,870 | 24.22 | % | 1,502 | 21.18 | % | |||||||||||||||||||
| Farmland | 523 | 4.07 | % | 482 | 4.20 | % | 400 | 4.32 | % | 387 | 5.01 | % | 380 | 5.36 | % | |||||||||||||||||||
| 1-4 family residential | 3,022 | 23.50 | % | 3,960 | 34.48 | % | 2,839 | 30.65 | % | 2,395 | 31.02 | % | 2,236 | 31.52 | % | |||||||||||||||||||
| Multi-family residential | 629 | 4.89 | % | 281 | 2.45 | % | 325 | 3.51 | % | 232 | 3.00 | % | 153 | 2.16 | % | |||||||||||||||||||
| Total real estate | 10,483 | 93.82 | % | 9,148 | 93.52 | % | 6,674 | 92.33 | % | 5,499 | 90.30 | % | 4,731 | 87.90 | % | |||||||||||||||||||
| Consumer | 608 | 4.73 | % | 591 | 5.15 | % | 573 | 6.18 | % | 612 | 7.93 | % | 725 | 10.21 | % | |||||||||||||||||||
| Agricultural | 187 | 1.45 | % | 153 | 1.33 | % | 138 | 1.49 | % | 137 | 1.77 | % | 134 | 1.89 | % | |||||||||||||||||||
| Total allowance for loan losses | $ | 12,859 | 100.00 | % | $ | 11,484 | 100.00 | % | $ | 9,263 | 100.00 | % | $ | 7,721 | 100.00 | % | $ | 7,093 | 100.00 | % | ||||||||||||||
Securities
We use our securities portfolio to provide a source of liquidity, provide an appropriate return on funds invested, manage interest rate risk, meet collateral requirements and meet regulatory capital requirements. As of December 31, 2017,2020, the carrying amount of our investment securities totaled $407.1$380.8 million, an increase of $60.8$12.6 million, or 17.5%3.4%, compared to $346.3$368.2 million as of December 31, 2016. The increase was due primarily to the investment of a portion of the funds received from our initial public offering and investment of excess cash due to growth in deposits. The carrying amount of our investment securities as of December 31, 2016 represented a decrease of $51.7 million, or 13.0%, compared to $398.0 million as of December 31, 2015. The decrease was due primarily to the sale of certain available for sale securities and the use of proceeds from maturing securities to fund increases in the loan portfolio.2019. Investment securities represented 20.7%, 18.9%13.9% and 23.7%15.9% of total assets as of December 31, 2017, 20162020 and 2015,December 31, 2019, respectively.
Our investment portfolio consists of securities classified as available for sale andsale. During the first quarter of 2020, we transferred all of our investment securities classified as held to maturity. maturity to available for sale in order to provide maximum flexibility to address liquidity and capital needs that may result from COVID-19. We believe these transfers are allowable under existing GAAP due to the isolated, non-recurring and unusual events resulting from the pandemic.
As of December 31, 2017,2020, securities available for sale totaled $380.8 million, which includes the transfer of securities from our held to maturity portfolio, as well as purchases of mortgage backed securities at a cost of $28.7 million, municipal securities at a cost of $22.3 million, and corporate securities at a cost of $11.0 million. As of December 31, 2019, securities available for sale and securities held to maturity totaled $232.4$212.7 million and $174.7 million, respectively. As of December 31, 2016, securities available for sale and securities in held to maturity totaled $156.9 million and $189.4 million, respectively, and as of December 31, 2015, $272.9 million and $125.0$155.5 million, respectively. Held to maturity percentages were 42.9%securities represented 42.2% of our investment portfolio as of December 31, 2017, 54.7% as of December 31, 2016, and 31.4% at December 31, 2015. We generally seek to maintain 50.0% or less of our portfolio in held to maturity securities.2019. The carrying values of our investment securities classified as available for sale are adjusted for unrealized gain or loss, and any gain or loss is reported on an after-tax basis as a component of other comprehensive income in shareholders’ equity. As of December 31, 2020, the Company determined that all available for sale securities that experienced a decline in fair value below their
69
amortized cost basis were impacted by noncredit-related factors; therefore the Company carried no ACL with respect to our securities portfolio at December 31, 2020.
The following table summarizes the amortized cost and estimated fair value of our investment securities as of the dates shown:
|
| As of December 31, 2020 |
| |||||||||||||
(in thousands) |
| Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
| ||||
Corporate bonds |
| $ | 29,608 |
|
| $ | 1,382 |
|
| $ | 8 |
|
| $ | 30,982 |
|
Municipal securities |
|
| 164,668 |
|
|
| 11,036 |
|
|
| — |
|
|
| 175,704 |
|
Mortgage-backed securities |
|
| 104,210 |
|
|
| 3,041 |
|
|
| 87 |
|
|
| 107,164 |
|
Collateralized mortgage obligations |
|
| 64,611 |
|
|
| 2,335 |
|
|
| 1 |
|
|
| 66,945 |
|
Total |
| $ | 363,097 |
|
| $ | 17,794 |
|
| $ | 96 |
|
| $ | 380,795 |
|
|
| As of December 31, 2019 |
| |||||||||||||
(in thousands) |
| Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
| ||||
Corporate bonds |
| $ | 19,667 |
|
| $ | 592 |
|
| $ | — |
|
| $ | 20,259 |
|
Municipal securities |
|
| 155,196 |
|
|
| 5,286 |
|
|
| 11 |
|
|
| 160,471 |
|
Mortgage-backed securities |
|
| 98,332 |
|
|
| 748 |
|
|
| 348 |
|
|
| 98,732 |
|
Collateralized mortgage obligations |
|
| 92,475 |
|
|
| 1,256 |
|
|
| 17 |
|
|
| 93,714 |
|
Total |
| $ | 365,670 |
|
| $ | 7,882 |
|
| $ | 376 |
|
| $ | 373,176 |
|
| As of December 31, 2017 | |||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
| (Dollars in thousands) | |||||||||||||||
| Corporate bonds | $ | 18,823 | $ | 64 | $ | 50 | $ | 18,837 | |||||||
| Municipal securities | 154,242 | 2,244 | 418 | 156,068 | |||||||||||
| Mortgage-backed securities | 114,497 | 199 | 2,023 | 112,673 | |||||||||||
| Collateralized mortgage obligations | 122,971 | 116 | 1,503 | 121,584 | |||||||||||
| Total | $ | 410,533 | $ | 2,623 | $ | 3,994 | $ | 409,162 | |||||||
| As of December 31, 2016 | |||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
| (Dollars in thousands) | |||||||||||||||
| Corporate bonds | $ | 25,254 | $ | 6 | $ | 377 | $ | 24,883 | |||||||
| Municipal securities | 157,261 | 901 | 4,511 | 153,651 | |||||||||||
| Mortgage-backed securities | 89,748 | 318 | 1,898 | 88,168 | |||||||||||
| Collateralized mortgage obligations | 77,290 | 275 | 1,187 | 76,378 | |||||||||||
| Total | $ | 349,553 | $ | 1,500 | $ | 7,973 | $ | 343,080 | |||||||
| As of December 31, 2015 | |||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
| (Dollars in thousands) | |||||||||||||||
| U.S. government agencies | $ | 5,158 | $ | 121 | $ | — | $ | 5,279 | |||||||
| Corporate bonds | 28,399 | — | 412 | 27,987 | |||||||||||
| Municipal securities | 67,350 | 2,384 | 18 | 69,716 | |||||||||||
| U.S. treasury securities | 29,985 | — | — | 29,985 | |||||||||||
| Mortgage-backed securities | 145,686 | 484 | 1,969 | 144,201 | |||||||||||
| Collateralized mortgage obligations | 124,490 | 564 | 1,466 | 123,588 | |||||||||||
| Total | $ | 401,068 | $ | 3,553 | $ | 3,865 | $ | 400,756 | |||||||
We do not hold any Fannie Mae or Freddie Mac preferred stock, collateralized debt obligations, structured investment vehicles or second lien elements in our investment portfolio. As of December 31, 2017,2020 and December 31, 2019, our investment portfolio did not contain any securities that are directly backed by subprime or Alt-A mortgages, non-U.S. agency mortgage-backed securities or corporate collateralized mortgage obligations.
Prior to adoption of ASC 326, management evaluatesevaluated securities for other-than-temporary impairmentOTTI at least on a quarterly basis, and more frequently when economic or market conditions warrantwarranted such an evaluation. As of December 31, 2017, there2019, no OTTI was no other-than-temporary impairment recorded.
The following table setstables set forth the fair value of available for sale securities and the amortized cost of held to maturity securities and, the fair value of available for sale securities, maturities and approximated weighted average yield based on estimated annual income divided by the average amortized cost of our securities portfolio as of the dates indicated. The contractual maturity of a mortgage-backed security is the date at which the last underlying mortgage matures.
|
| As of December 31, 2020 |
| ||||||||||||||||||||||||||||||||
|
| Within One Year |
|
| After One Year but Within Five Years |
|
| After Five Years but Within Ten Years |
|
| After Ten Years |
|
| Total |
| ||||||||||||||||||||
(dollars in thousands) |
| Amount |
|
| Yield |
|
| Amount |
|
| Yield |
|
| Amount |
|
| Yield |
|
| Amount |
|
| Yield |
|
| Total |
|
| Yield |
| |||||
Corporate bonds |
| $ | — |
|
| — |
|
| $ | 18,839 |
|
| 2.96% |
|
| $ | 12,143 |
|
| 4.31% |
|
| $ | — |
|
| — |
|
| $ | 30,982 |
|
| 3.49% |
|
Municipal securities |
|
| 4,154 |
|
| 2.84% |
|
|
| 35,849 |
|
| 3.13% |
|
|
| 51,823 |
|
| 3.39% |
|
|
| 83,878 |
|
| 3.23% |
|
|
| 175,704 |
|
| 3.25% |
|
Mortgage-backed securities |
|
| 170 |
|
| 3.37% |
|
|
| 74,450 |
|
| 2.04% |
|
|
| 22,104 |
|
| 2.05% |
|
|
| 10,440 |
|
| 1.81% |
|
|
| 107,164 |
|
| 2.02% |
|
Collateralized mortgage obligations |
|
| 9,641 |
|
| 1.49% |
|
|
| 57,304 |
|
| 2.74% |
|
|
| — |
|
| — |
|
|
| — |
|
| — |
|
|
| 66,945 |
|
| 2.56% |
|
Total |
| $ | 13,965 |
|
| 1.91% |
|
| $ | 186,442 |
|
| 2.56% |
|
| $ | 86,070 |
|
| 3.17% |
|
| $ | 94,318 |
|
| 3.07% |
|
| $ | 380,795 |
|
| 2.80% |
|
|
| As of December 31, 2019 |
| ||||||||||||||||||||||||||||||||
|
| Within One Year |
|
| After One Year but Within Five Years |
|
| After Five Years but Within Ten Years |
|
| After Ten Years |
|
| Total |
| ||||||||||||||||||||
(dollars in thousands) |
| Amount |
|
| Yield |
|
| Amount |
|
| Yield |
|
| Amount |
|
| Yield |
|
| Amount |
|
| Yield |
|
| Total |
|
| Yield |
| |||||
Corporate bonds |
| $ | 1,018 |
|
| 2.79% |
|
| $ | 12,496 |
|
| 2.87% |
|
| $ | 6,745 |
|
| 3.47% |
|
| $ | — |
|
| — |
|
| $ | 20,259 |
|
| 3.07% |
|
Municipal securities |
|
| 2,189 |
|
| 3.10% |
|
|
| 31,497 |
|
| 3.02% |
|
|
| 39,951 |
|
| 3.40% |
|
|
| 82,127 |
|
| 3.07% |
|
|
| 155,764 |
|
| 3.14% |
|
Mortgage-backed securities |
|
| — |
|
| — |
|
|
| 55,974 |
|
| 2.45% |
|
|
| 42,573 |
|
| 2.67% |
|
|
| — |
|
| — |
|
|
| 98,547 |
|
| 2.54% |
|
Collateralized mortgage obligations |
|
| 1,652 |
|
| 3.44% |
|
|
| 91,952 |
|
| 2.70% |
|
|
| — |
|
| — |
|
|
| — |
|
| — |
|
|
| 93,604 |
|
| 2.72% |
|
Total |
| $ | 4,859 |
|
| 3.15% |
|
| $ | 191,919 |
|
| 2.69% |
|
| $ | 89,269 |
|
| 3.05% |
|
| $ | 82,127 |
|
| 3.07% |
|
| $ | 368,174 |
|
| 2.87% |
|
| As of December 31, 2017 | ||||||||||||||||||||||||||||||||||
Within One Year | After One Year but Within Five Years | After Five Years but Within Ten Years | After Ten Years | Total | ||||||||||||||||||||||||||||||
| Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Total | Yield | |||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||
| Corporate bonds | $ | — | — | % | $ | 6,129 | 2.67 | % | $ | 12,708 | 3.04 | % | $ | — | — | % | $ | 18,837 | 2.92 | % | ||||||||||||||
| Municipal securities | 2,663 | 2.18 | % | 5,769 | 3.47 | % | 42,711 | 3.73 | % | 102,899 | 3.63 | % | 154,042 | 3.63 | % | |||||||||||||||||||
| Mortgage-backed securities | — | — | % | 48,969 | 2.19 | % | 63,735 | 2.59 | % | — | — | % | 112,704 | 2.42 | % | |||||||||||||||||||
| Collateralized mortgage obligations | 307 | 4.24 | % | 80,203 | 2.58 | % | 40,963 | 2.57 | % | — | — | % | 121,473 | 2.58 | % | |||||||||||||||||||
| Total | $ | 2,970 | 2.40 | % | $ | 141,070 | 2.48 | % | $ | 160,117 | 2.92 | % | $ | 102,899 | 3.63 | % | $ | 407,056 | 2.93 | % | ||||||||||||||
| As of December 31, 2016 | ||||||||||||||||||||||||||||||||||
Within One Year | After One Year but Within Five Years | After Five Years but Within Ten Years | After Ten Years | Total | ||||||||||||||||||||||||||||||
| Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Total | Yield | |||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||
| Corporate bonds | $ | — | — | % | $ | 7,453 | 2.30 | % | $ | 17,430 | 2.93 | % | $ | — | — | % | $ | 24,883 | 2.75 | % | ||||||||||||||
| Municipal securities | 732 | 3.98 | % | 6,103 | 3.45 | % | 38,634 | 3.49 | % | 111,170 | 3.62 | % | 156,639 | 3.58 | % | |||||||||||||||||||
| Mortgage-backed securities | — | — | % | 74,047 | 2.02 | % | 14,093 | 2.27 | % | — | — | % | 88,140 | 2.06 | % | |||||||||||||||||||
| Collateralized mortgage obligations | — | — | % | 27,668 | 2.92 | % | 26,184 | 2.68 | % | 22,782 | 2.98 | % | 76,634 | 2.81 | % | |||||||||||||||||||
| Total | $ | 732 | 3.98 | % | $ | 115,271 | 2.33 | % | $ | 96,341 | 3.00 | % | $ | 133,952 | 3.50 | % | $ | 346,296 | 2.97 | % | ||||||||||||||
| As of December 31, 2015 | ||||||||||||||||||||||||||||||||||
Within One Year | After One Year but Within Five Years | After Five Years but Within Ten Years | After Ten Years | Total | ||||||||||||||||||||||||||||||
| Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Total | Yield | |||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||
| U.S. government agencies | $ | — | — | % | $ | — | — | % | $ | 5,158 | 2.92 | % | $ | — | — | % | $ | 5,158 | 2.92 | % | ||||||||||||||
| Corporate bonds | — | — | % | 10,515 | 2.20 | % | 17,472 | 2.92 | % | — | — | % | 27,987 | 2.66 | % | |||||||||||||||||||
| Municipal securities | 995 | 2.44 | % | 1,152 | 4.18 | % | 33,676 | 3.43 | % | 31,527 | 4.08 | % | 67,350 | 3.74 | % | |||||||||||||||||||
| U.S. treasury securities | 29,985 | 0.22 | % | — | — | % | — | — | % | — | — | % | 29,985 | 0.22 | % | |||||||||||||||||||
| Mortgage-backed securities | — | — | % | 104,532 | 2.07 | % | 39,343 | 2.49 | % | — | — | % | 143,875 | 2.18 | % | |||||||||||||||||||
| Collateralized mortgage obligations | 170 | 5.18 | % | 89,527 | 2.33 | % | 12,314 | 2.65 | % | 21,609 | 2.88 | % | 123,620 | 2.46 | % | |||||||||||||||||||
| Total | $ | 31,150 | 0.32 | % | $ | 205,726 | 2.20 | % | $ | 107,963 | 2.90 | % | $ | 53,136 | 3.59 | % | $ | 397,975 | 2.43 | % | ||||||||||||||
70
The contractual maturity of mortgage-backed securities and collateralized mortgage obligations is not a reliable indicator of their expected life because borrowers have the right to prepay their obligations at any time. Mortgage-backed securities and collateralized mortgage obligations are typically issued with stated principal amounts and are backed by pools of mortgage loans and other loans with varying maturities. The term of the underlying mortgages and loans may vary significantly due to the ability of a borrower to prepay. Monthly pay downs on mortgage-backed securities tend totypically cause the average life of the securities to be much different than the stated contractual maturity. During a period of increasing interest rates, fixed rate mortgage-backed securities do not tend to experience heavy prepayments of principal, and, consequently, the average life of this security is typically lengthened. If interest rates begin to fall, prepayments may increase, thereby shortening the estimated life of this security. The weighted average life of our investment portfolio was 7.316.22 years with an estimated effective duration of 4.272.92 years as of December 31, 2017.
As of December 31, 2017, 20162020 and 2015,2019, respectively, we did not own securities of any one issuer, other than the U.S. government and its agencies, for which aggregate adjusted cost exceeded 10.0% of the consolidated shareholders’ equity.
The average yield of our securities portfolio was 2.80% as of December 31, 2020, down from 2.87% as of December 31, 2019. The decline in average yield resulted primarily from decreases in yields on mortgage backed securities and collateralized mortgage obligations of 2.54% and 2.72% at December 31, 2019, respectively, to 2.02% and 2.56% at December 31, 2020, respectively. Municipal securities, mortgage backed securities and collateralized mortgage obligations comprised 46.1%, 28.1% and 17.6% of the total portfolio, respectively, as of December 31, 2020, and 42.3%, 26.8% and 25.4%, respectively, as of December 31, 2019.
Deposits
We offer a variety of deposit products, which have a wide range of interest rates and terms, including demand, savings, money market and time accounts. We rely primarily on competitive pricing policies, convenient locations and personalized service to attract and retain these deposits.
Average deposits for the year ended December 31, 20172020 were $1.6$2.16 billion, an increase of $109.4$203.7 million, or 7.2%10.4%, over $1.5compared to $1.96 billion for the year ended December 31, 2016. Average deposits grew $249.6 million, or 19.7%, from $1.3 billion for2019. The majority of the deposit balance increase was due to the deposit of PPP proceeds into demand accounts at the Bank, as well as apparent changes in depositor spending habits during the year ended December 31, 2015. The increase in both periods is primarilyresulting from economic and other uncertainties due to our continued growth in our primary market areas and the increase in commercial lending relationships for which we also seek deposit balances.COVID-19. The average rate paid on total interest-bearing deposits was 0.85%
The following table presents the average balances and average rates paid on deposits for the periods indicated:
|
| For the Years Ended December 31, |
| |||||||||||
|
| 2020 |
|
| 2019 |
| ||||||||
(dollars in thousands) |
| Average Balance |
|
| Average Rate |
|
| Average Balance |
|
| Average Rate |
| ||
NOW and interest-bearing demand accounts |
| $ | 293,111 |
|
| 0.44% |
|
| $ | 264,483 |
|
| 1.19% |
|
Savings accounts |
|
| 87,092 |
|
| 0.15% |
|
|
| 71,940 |
|
| 0.30% |
|
Money market accounts |
|
| 642,239 |
|
| 0.47% |
|
|
| 609,741 |
|
| 1.21% |
|
Certificates and other time deposits |
|
| 445,911 |
|
| 1.62% |
|
|
| 514,051 |
|
| 2.11% |
|
Total interest-bearing deposits |
|
| 1,468,353 |
|
| 0.79% |
|
|
| 1,460,215 |
|
| 1.48% |
|
Noninterest-bearing demand accounts |
|
| 696,454 |
|
| — |
|
|
| 500,895 |
|
| — |
|
Total deposits |
| $ | 2,164,807 |
|
| 0.54% |
|
| $ | 1,961,110 |
|
| 1.10% |
|
| For the Years Ended December 31, 2017 | ||||||||||||||||||||
| 2017 | 2016 | 2015 | ||||||||||||||||||
Average Balance | Average Rate | Average Balance | Average Rate | Average Balance | Average Rate | |||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Now and interest-bearing demand accounts | $ | 258,356 | 0.58 | % | $ | 278,521 | 0.32 | % | $ | 238,902 | 0.36 | % | ||||||||
| Savings accounts | 64,704 | 0.13 | % | 59,961 | 0.11 | % | 53,425 | 0.12 | % | |||||||||||
| Money market accounts | 599,336 | 0.98 | % | 482,089 | 0.97 | % | 318,934 | 0.75 | % | |||||||||||
| Certificates and other time deposits | 318,719 | 0.99 | % | 354,949 | 0.97 | % | 353,639 | 0.91 | % | |||||||||||
| Total interest-bearing deposits | 1,241,115 | 0.85 | % | 1,175,520 | 0.77 | % | 964,900 | 0.68 | % | |||||||||||
| Noninterest-bearing demand accounts | 384,049 | — | % | 340,240 | — | % | 301,288 | — | % | |||||||||||
| Total deposits | $ | 1,625,164 | 0.65 | % | $ | 1,515,760 | 0.60 | % | $ | 1,266,188 | 0.52 | % | ||||||||
The ratio of average noninterest-bearing deposits to average total deposits for the years ended December 31, 2017, 20162020 and 20152019 was 23.63%, 22.45%32.2% and 23.79%25.5%, respectively.
Total deposits as of December 31, 20172020 were $1.68$2.29 billion, an increase of $99.5$329.6 million, or 6.3%16.8%, compared to $1.58$1.96 billion as of December 31, 2016. Total deposits as of December 31, 2016 increased $110.6 million, or 7.5%, compared to $1.47 billion as of December 31, 2015.2019. The increasesincrease in both periods were2020 was due primarily to organic growth.
71
Noninterest-bearing deposits as of December 31, 20172020 were $410.0$779.7 million compared to $358.8$525.9 million as of December 31, 2016,2019, an increase of $51.3$253.9 million, or 14.3%48.3%. The balance for non-interesting bearing deposits as of December 31, 2016 represented an increase of $33.2 million, or 10.2%, compared to $325.6 million as of December 31, 2015.
Total savings and interest-bearing demand account balances as of December 31, 20172020 were $969.5 million,$1.51 billion, compared to $876.4 million$1.43 billion as of December 31, 2016,2019, an increase of $93.1$75.7 million, or 10.6%5.3%. The December 31, 2016 balance for total savings and interest-bearing demand accounts represented an increase of $89.9 million, or 11.4%, compared to $786.5 million as of December 31, 2015.
The following table sets forth the amount of certificates of deposit greater than $100,000 by time remaining until maturity as of December 31, 2017:2020:
|
| As of December 31, 2020 |
| |||||
(dollars in thousands) |
| Amount |
|
| Weighted Average Interest Rate |
| ||
Under 3 months |
| $ | 93,603 |
|
|
| 1.23 | % |
3 to 6 months |
|
| 38,225 |
|
|
| 0.74 | % |
6 to 12 months |
|
| 86,110 |
|
|
| 0.76 | % |
12 to 24 months |
|
| 36,050 |
|
|
| 1.22 | % |
24 to 36 months |
|
| 8,848 |
|
|
| 2.17 | % |
36 to 48 months |
|
| 2,821 |
|
|
| 2.26 | % |
Over 48 months |
|
| 644 |
|
|
| 1.20 | % |
Total |
| $ | 266,301 |
|
|
| 1.05 | % |
| 2017 | |||
| Three months or less | $ | 47,237 | |
| Over three months through six months | 28,911 | ||
| Over six months through 12 months | 62,926 | ||
| Over 12 months through three years | 31,830 | ||
| Over three years | 15,558 | ||
| Total | $ | 186,462 | |
Factors affecting the cost of funding interest-bearing assets include the volume of noninterest- and interest-bearing deposits, changes in market interest rates and economic conditions in our primary market areas and their impact on interest paid on deposits, as well as the ongoing execution of our balance sheet management strategy. Cost of funds is calculated as total interest expense divided by average total deposits plus average total borrowings. Our cost of funds was 0.92%, 0.85%0.82% and 0.75%1.54% in 2017, 20162020 and 2015,2019, respectively. The increasedecrease in our cost of funds for 2017 and 20162020 was primarily due to increasesdecreases in our average rates on interest-bearing deposits, which were 0.85%, 0.77%0.79% and 0.68%1.48% in 2017, 20162020 and 2015, respectively. These increases were2019, respectively, and maturities of higher rate certificates of deposit during the year. The decrease in average rates for 2020 was driven primarily by the Federal Reserve reducing rates starting during the third quarter of 2019, with further decreases in 2020 in response to the economic uncertainty due to both an increase in the proportion of our deposits consisting of higher cost money market accounts offered in our newer markets from 26.0% of our total deposits in 2015 to 34.5% and 38.2% in 2016 and 2017, respectively, and an increase in the average rates offered on those deposits from 0.75% in 2015 to 0.97% and 0.98% in 2016 and 2017, respectively, which is part of our expansion strategy.
Borrowings
We utilize short-term and long-term borrowings to supplement deposits to fund our lending and investment activities, each of which is discussed below.
Federal Home Loan Bank (FHLB) Advances
. The FHLB allows us to borrow on a blanket floating lien status collateralized by certain securities and loans. As of December 31,(dollars in thousands) |
| FHLB Advances |
| |
December 31, 2020 |
|
|
|
|
Amount outstanding at year-end |
| $ | 109,101 |
|
Weighted average interest rate at year-end |
|
| 0.26 | % |
Maximum month-end balance during the year |
| $ | 150,613 |
|
Average balance outstanding during the year |
| $ | 75,940 |
|
Weighted average interest rate during the year |
|
| 0.54 | % |
|
|
|
|
|
December 31, 2019 |
|
|
|
|
Amount outstanding at year-end |
| $ | 55,118 |
|
Weighted average interest rate at year-end |
|
| 1.69 | % |
Maximum month-end balance during the year |
| $ | 80,134 |
|
Average balance outstanding during the year |
| $ | 58,070 |
|
Weighted average interest rate during the year |
|
| 2.31 | % |
| FHLB Advances | |||
| (Dollars in Thousands) | |||
| December 31, 2017 | |||
| Amount outstanding at year-end | $ | 45,153 | |
| Weighted average interest rate at year-end | 1.26 | % | |
| Maximum month-end balance during the year | $ | 65,168 | |
| Average balance outstanding during the year | $ | 46,256 | |
| Weighted average interest rate during the year | 1.00 | % | |
| December 31, 2016 | |||
| Amount outstanding at year-end | $ | 55,170 | |
| Weighted average interest rate at year-end | 0.47 | % | |
| Maximum month-end balance during the year | $ | 106,325 | |
| Average balance outstanding during the year | $ | 62,789 | |
| Weighted average interest rate during the year | 0.55 | % | |
| December 31, 2015 | |||
| Amount outstanding at year-end | $ | 21,342 | |
| Weighted average interest rate at year-end | 1.23 | % | |
| Maximum month-end balance during the year | $ | 111,523 | |
| Average balance outstanding during the year | $ | 104,118 | |
| Weighted average interest rate during the year | 0.67 | % | |
72
Federal Reserve Bank of Dallas
. The Federal Reserve Bank of Dallas has an available borrower in custody arrangement, which allows us to borrow on a collateralized basis. Certain commercial and industrial and consumer loans are pledged under this arrangement. We maintain this borrowing arrangement to meet liquidity needs pursuant to our contingency funding plan. As of December 31,Other Borrowings.
Liquidity and Capital Resources
Liquidity
Liquidity involves our ability to raise funds to support asset growth and acquisitions or reduce assets to meet deposit withdrawals and other payment obligations, to maintain reserve requirements and otherwise to operate on an ongoing basis and manage unexpected events.events, such as COVID-19. For the years ended December 31, 2017, 20162020 and 2015,2019, liquidity needs were primarily met by core deposits, security and loan maturities and amortizing investment and loan portfolios.
During the second quarter of 2020, we obtained a six-month advance of $100.0 million from the FHLB at a fixed interest rate of 0.25%, a maturity date of October 13, 2020 and no prepayment penalty, in order to provide additional liquidity for the SBA Paycheck Protection Program. The PPP loans generally self-funded with the proceeds of the loans deposited into noninterest bearing demand accounts at our Bank. As result, the $100.0 million advance was not necessary for liquidity and $50.0 million of the FHLB advance was repaid in June 2020, with the remaining $50.0 million repaid in early July 2020.
73
The following table illustrates, during the periods presented, the composition of our funding sources and the average assets in which those funds are invested as a percentage of average total assets for the period indicated. Average assets were $1.9$2.57 billion for the year ended December 31, 2017, $1.82020 and $2.32 billion for the year ended December 31, 2016 and $1.6 billion for the year ended
|
| For the Years Ended December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
|
| Average |
|
| Average |
| ||
Sources of Funds: |
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
Noninterest-bearing |
|
| 27.09 | % |
|
| 21.60 | % |
Interest-bearing |
|
| 57.11 | % |
|
| 62.97 | % |
Advances from FHLB |
|
| 2.95 | % |
|
| 2.50 | % |
Line of credit |
|
| 0.26 | % |
|
| — |
|
Subordinated debentures |
|
| 0.67 | % |
|
| 0.51 | % |
Securities sold under agreements to repurchase |
|
| 0.70 | % |
|
| 0.47 | % |
Accrued interest and other liabilities |
|
| 0.96 | % |
|
| 1.02 | % |
Shareholders’ equity |
|
| 10.26 | % |
|
| 10.93 | % |
Total |
|
| 100.00 | % |
|
| 100.00 | % |
Uses of Funds: |
|
|
|
|
|
|
|
|
Loans |
|
| 71.72 | % |
|
| 72.16 | % |
Securities available for sale |
|
| 13.17 | % |
|
| 9.89 | % |
Securities held to maturity |
|
| 1.40 | % |
|
| 6.86 | % |
Nonmarketable equity securities |
|
| 0.42 | % |
|
| 0.49 | % |
Federal funds sold |
|
| 4.82 | % |
|
| 1.89 | % |
Interest-bearing deposits in other banks |
|
| 5.70 | % |
|
| 2.32 | % |
Other noninterest-earning assets |
|
| 2.77 | % |
|
| 6.39 | % |
Total |
|
| 100.00 | % |
|
| 100.00 | % |
|
|
|
|
|
|
|
|
|
Average noninterest-bearing deposits to average deposits |
|
| 32.17 | % |
|
| 25.54 | % |
Average loans to average deposits |
|
| 86.52 | % |
|
| 86.13 | % |
| For the Years Ended December 31, | ||||||||
| 2017 | 2016 | 2015 | ||||||
Average Rate | Average Rate | Average Rate | ||||||
| Sources of Funds: | ||||||||
| Deposits: | ||||||||
| Noninterest-bearing | 20.22 | % | 19.15 | % | 19.42 | % | ||
| Interest-bearing | 65.34 | % | 66.16 | % | 62.20 | % | ||
| Federal funds purchased | — | % | 0.01 | % | — | % | ||
| Advances from FHLB | 2.44 | % | 3.53 | % | 6.71 | % | ||
| Other debt | 0.35 | % | 0.74 | % | 0.68 | % | ||
| Subordinated debentures | 0.84 | % | 1.14 | % | 0.91 | % | ||
| Securities sold under agreements to repurchase | 0.70 | % | 0.73 | % | 0.72 | % | ||
| Consideration payable | — | % | — | % | 0.24 | % | ||
| Accrued interest and other liabilities | 0.35 | % | 0.36 | % | 0.35 | % | ||
| Shareholders’ equity | 9.76 | % | 8.18 | % | 8.77 | % | ||
| Total | 100.00 | % | 100.00 | % | 100.00 | % | ||
| Uses of Funds: | ||||||||
| Loans | 66.92 | % | 65.80 | % | 63.38 | % | ||
| Securities available for sale | 11.75 | % | 11.17 | % | 15.05 | % | ||
| Securities held to maturity | 9.61 | % | 10.29 | % | 8.16 | % | ||
| Nonmarketable equity securities | 0.38 | % | 0.48 | % | 0.48 | % | ||
| Federal funds sold | 2.51 | % | 2.96 | % | 3.87 | % | ||
| Interest-bearing deposits in other banks | 1.21 | % | 1.44 | % | 0.83 | % | ||
| Other noninterest-earning assets | 7.62 | % | 7.86 | % | 8.23 | % | ||
| Total | 100.00 | % | 100.00 | % | 100.00 | % | ||
| Average noninterest-bearing deposits to average deposits | 23.63 | % | 22.45 | % | 23.79 | % | ||
| Average loans to average deposits | 78.96 | % | 77.84 | % | 78.34 | % | ||
Our primary source of funds is deposits, and our primary use of funds is loans. We do not expect a change in the primary source or use of our funds in the foreseeable future. Our average loans, including average loans held for sale, increased 8.8%10.8% for the year ended December 31, 20172020 compared to the same period in 2016, and 19.0% for the year ended December 31, 2016 compared to the same period in 2015.2019. Our securities portfolio had a weighted average life of 7.316.22 years and an effective duration of 4.272.92 years as of December 31, 2017,2020, and a weighted average life of 8.066.25 years and an effective duration of 5.313.47 years as of December 31, 2016.2019. We predominantly invest excess deposits in overnight deposits with our correspondent banks, federal funds sold, securities, interest-bearing deposits at other banks or other short-term liquid investments until needed to fund loan growth.
As of December 31, 2017,2020, we had $326.9$324.3 million in outstanding commitments to extend credit and $8.3$8.5 million in commitments associated with outstanding standby and commercial letters of credit. As of December 31, 2016,2019, we had $297.6$440.7 million in outstanding commitments to extend credit and $8.9$9.1 million in commitments associated with outstanding standby and commercial letters of credit. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the total outstanding may not necessarily reflect the actual future cash funding requirements.
As of December 31, 20172020 and 2016,2019, we had no exposure to future cash requirements associated with known uncertainties or capital expenditures of a material nature. As of December 31, 2017,2020, we had cash and cash equivalents of $91.4$351.8 million, compared to $127.5$90.7 million as of December 31, 2016.2019. The decreaseincrease was primarily due to an decreaseincrease in federal funds sold of $34.4$173.6 million, and an increase in interest bearing deposits at other banks of $79.6 million.
74
Capital Resources
Total shareholders’ equity including KSOP-owned shares, increased to $207.3$272.6 million as of December 31, 2017,2020, compared to $141.9$261.6 million
Capital management consists of providing equity and other instruments that qualify as regulatory capital to support current and future operations. Banking regulators view capital levels as important indicators of an institution’s financial soundness. As a general matter, FDIC-insured depository institutions and their holding companies are required to maintain minimum capital relative to the amount and types of assets they hold. We are subject to regulatory capital requirements at the bank holding company and bank levels. See "
Item 1. Business—Guaranty Bank & Trust, N.A.—Regulation and Supervision—Capital Adequacy Requirements” for additional discussion regarding the regulatory capital requirements applicable to us and the Bank. As of December 31,The following table presents the regulatory capital ratios for our Company and the Bank as of the dates indicated.
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||||||||||
(dollars in thousands) |
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
| ||||
Guaranty Bancshares, Inc. (consolidated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk weighted assets) |
| $ | 263,144 |
|
|
| 13.20 | % |
| $ | 253,793 |
|
|
| 13.29 | % |
Tier 1 capital (to risk weighted assets) |
|
| 238,115 |
|
|
| 11.94 | % |
|
| 237,591 |
|
|
| 12.44 | % |
Tier 1 capital (to average assets) |
|
| 238,115 |
|
|
| 9.13 | % |
|
| 237,591 |
|
|
| 10.29 | % |
Common equity tier 1 risk-based capital |
|
| 227,805 |
|
|
| 11.43 | % |
|
| 227,281 |
|
|
| 11.90 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranty Bank & Trust, N.A. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk weighted assets) |
| $ | 285,490 |
|
|
| 14.32 | % |
| $ | 249,643 |
|
|
| 13.07 | % |
Tier 1 capital (to risk weighted assets) |
|
| 260,459 |
|
|
| 13.06 | % |
|
| 233,441 |
|
|
| 12.22 | % |
Tier 1 capital (to average assets) |
|
| 260,459 |
|
|
| 9.99 | % |
|
| 233,441 |
|
|
| 10.11 | % |
Common equity tier 1 risk-based capital |
|
| 260,459 |
|
|
| 13.06 | % |
|
| 233,441 |
|
|
| 12.22 | % |
| As of December 31, 2017 | As of December 31, 2016 | ||||||||||||
| Amount | Ratio | Amount | Ratio | ||||||||||
| Guaranty Bancshares, Inc. | (Dollars in thousands) | ||||||||||||
| Total capital (to risk weighted assets) | $ | 215,720 | 14.13 | % | $ | 149,468 | 10.86 | % | |||||
| Tier 1 capital (to risk weighted assets) | 202,861 | 13.29 | % | 137,984 | 10.03 | % | |||||||
| Tier 1 capital (to average assets) | 202,861 | 10.53 | % | 137,984 | 7.71 | % | |||||||
| Common equity tier 1 risk-based capital | 192,551 | 12.61 | % | 127,674 | 9.28 | % | |||||||
| Guaranty Bank & Trust, N.A. | |||||||||||||
| Total capital (to risk weighted assets) | $ | 206,490 | 13.53 | % | $ | 173,528 | 12.63 | % | |||||
| Tier 1 capital (to risk weighted assets) | 193,631 | 12.68 | % | 162,044 | 11.79 | % | |||||||
| Tier 1 capital (to average assets) | 193,631 | 10.05 | % | 162,044 | 9.06 | % | |||||||
| Common equity tier 1 risk-based capital | 193,631 | 12.68 | % | 162,044 | 11.79 | % | |||||||
Contractual Obligations
We have issued subordinated debentures relating to the issuance of trust preferred securities. In October 2002, we formed Guaranty (TX) Capital Trust II, which issued $3.0 million in trust preferred securities to a third party in a private placement. Concurrent with the issuance of the trust preferred securities, the trust issued common securities to the Company in the aggregate liquidation value of $93,000. The trust invested the total proceeds from the sale of the trust preferred securities and the common securities in $3.1 million of the Company’s junior subordinated debentures, which will mature on October 30, 2032. In July 2006, we formed Guaranty (TX) Capital Trust III, which issued $2.0 million in trust preferred securities to a third party in a private placement. Concurrent with the issuance of the trust preferred securities, the trust issued common securities to the Company in the aggregate liquidation value of $62,000. The trust invested the total proceeds from the sale of the trust preferred securities and the common securities in $2.1 million of the Company’s junior subordinated debentures, which will mature on October 1, 2036. In March 2015, we acquired DCB Financial Trust I, which issued $5.0 million in trust preferred securities to a third party in a private placement. Concurrent with the issuance of the trust preferred securities, the trust issued common securities to the Company in the aggregate liquidation value of $155,000. The trust invested the total proceeds from the sale of the trust preferred securities and the common securities in $5.2 million of the Company’s junior subordinated debentures, which will mature on June 15, 2037.
75
With certain exceptions, the amount of the principal and any accrued and unpaid interest on the debentures are subordinated in right of payment to the prior payment in full of all of our senior indebtedness of the Company.indebtedness. The terms of the debentures are such that they qualify as Tier 1 capital under the Federal Reserve’s regulatory capital guidelines applicable to bank holding companies. Interest on Trust II Debentures is payable at a variable rate per annum, reset quarterly, equal to 3-month LIBOR plus 3.35%, thereafter.. Interest on the Trust III debenturesDebentures was payable at a fixed rate per annum equal to 7.43% until October 1, 2016 and is a variable rate per annum, reset quarterly, equal to 3-month LIBOR plus 1.67%, thereafter.. Interest on the DCB Financial Trust I debentureDebentures is payable at a variable rate per annum, reset quarterly, equal to 3-month LIBOR plus 1.80%. The interest is deferrable on a cumulative basis for up to five consecutive years following a suspension of dividend payments on all other capital stock. No principal payments are due until maturity for each of the debentures.
On any interest payment date on or after (1) June 15, 2012 for the DCB Financial debentures,Trust I Debentures, (2) October 30, 2012 for the Trust II debentures,Debentures and (3) October 1, 2016 for the Trust III debentures,Debentures, and before their respective maturity date,dates, the debentures are redeemable, in whole or in part, for cash at theour option of the Company on at least 30, but not more than 60, days’ notice at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued interest to the date of redemption.
In JulyDecember 2015, the Company issued $4,000$5.0 million in debentures, of which $3,000$2.5 million were issued to directors and other related parties. As of December 31, 2019, $4.5 million of the debentures had been repaid. The $3,000final $500,000 debenture was repaid during the second quarter of 2020.
On May 1, 2020, the Company issued $10.0 million in debentures to directors and other related parties were repaidparties. The debentures have stated maturity dates between November 1, 2020 and November 1, 2024, and bear interest at fixed annual rates between 1.00% and 4.00%. The Company pays interest semi-annually on May 1st and November 1st in May 2017 and a $500 par value debenture, which carried a 2.5%, matured andarrears during the term of the debentures. $500,000 was repaidpaid off in July 2017.November of 2020. The remaining $500 debenture has a rate of 4.00% and a maturity date of January 1, 2019. Atdebentures are redeemable by the Company’sCompany at its option, and with 30 days advanced notice to the holder, the entire principal amount and all accrued interest may be paid to the holderin whole in or part, at any time on or before the due date of any debenture. The redemption price is equal to 100% of the face amount of the debenture redeemed, plus all accrued but unpaid interest. In December 2015, the Company issued $5,000 in debentures, of which $2,500 were issued to directors and other related parties. In May 2017, $2,000 of the related party debentures were repaid with a portion of the proceeds of Guaranty's initial public offering. The remaining $3,000 of debentures were issued at par value of $500 each with rates ranging from 3.00% to 5.00% and maturity dates from July 1, 2018 to July 1, 2020. At the Company’s option, and with 30 days advanced notice to the holder, the entire principal amount and all accrued interest may be paid to the holder on or before the due date of any debenture. The redemption price is equal to 100% of the face amount of the debenture redeemed, plus all accrued interest.
The following table summarizes contractual obligations and other commitments to make future payments as of December 31, 20172020 (other than non-time deposit obligations), which consist of future cash payments associated with our contractual obligations.
|
| As of December 31, 2020 |
| |||||||||||||||||
(in thousands) |
| 1 year or less |
|
| More than 1 year but less than 3 years |
|
| 3 years or more but less than 5 years |
|
| 5 years or more |
|
| Total |
| |||||
Time deposits |
| $ | 306,760 |
|
| $ | 64,012 |
|
| $ | 7,878 |
|
| $ | — |
|
| $ | 378,650 |
|
Advances from FHLB |
|
| 101,601 |
|
|
| 1,500 |
|
|
| 6,000 |
|
|
| — |
|
|
| 109,101 |
|
Subordinated debentures |
|
| — |
|
|
| 5,500 |
|
|
| 4,000 |
|
|
| 10,310 |
|
|
| 19,810 |
|
Operating leases |
|
| 1,683 |
|
|
| 3,079 |
|
|
| 3,059 |
|
|
| 5,718 |
|
|
| 13,539 |
|
Total |
| $ | 410,044 |
|
| $ | 74,091 |
|
| $ | 20,937 |
|
| $ | 16,028 |
|
| $ | 521,100 |
|
| As of December 31, 2017 | |||||||||||||||||||
| 1 year or less | More than 1 year but less than 3 years | 3 years or more but less than 5 years | 5 years or more | Total | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||
| Time deposits | $ | 224,772 | $ | 49,479 | $ | 22,589 | $ | — | $ | 296,840 | |||||||||
| Advances from FHLB | 25,000 | — | 20,153 | — | 45,153 | ||||||||||||||
| Subordinated debentures | 1,000 | 2,500 | — | 10,310 | 13,810 | ||||||||||||||
| Total | $ | 250,772 | $ | 51,979 | $ | 42,742 | $ | 10,310 | $ | 355,803 | |||||||||
76
Off-Balance Sheet Items
In the normal course of business, we enter into various transactions, which, in accordance with GAAP, are not included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. These transactions include commitments to extend credit and standby and commercial letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in our consolidated balance sheets.
Our commitments associated with outstanding standby and commercial letters of credit and commitments to extend credit expiring by period as of the date indicated are summarized below. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements.
|
| As of December 31, 2020 |
| |||||||||||||||||
(in thousands) |
| 1 year or less |
|
| More than 1 year but less than 3 years |
|
| 3 years or more but less than 5 years |
|
| 5 years or more |
|
| Total |
| |||||
Standby and commercial letters of credit |
| $ | 3,308 |
|
| $ | 1,750 |
|
| $ | 375 |
|
| $ | 3,055 |
|
| $ | 8,488 |
|
Commitments to extend credit |
|
| 177,764 |
|
|
| 67,738 |
|
|
| 10,154 |
|
|
| 68,620 |
|
|
| 324,276 |
|
Total |
| $ | 181,072 |
|
| $ | 69,488 |
|
| $ | 10,529 |
|
| $ | 71,675 |
|
| $ | 332,764 |
|
| As of December 31, 2017 | ||||||||||||||
| 1 year or less | More than 1 year but less than 3 years | 3 years or more but less than 5 years | 5 years or more | Total | ||||||||||
| (Dollars in thousands) | ||||||||||||||
| Standby and commercial letters of credit | 6,299 | 218 | 91 | 1,728 | 8,336 | |||||||||
| Commitments to extend credit | 163,997 | 41,976 | 63,417 | 57,489 | 326,879 | |||||||||
| Total | 170,296 | 42,194 | 63,508 | 59,217 | 335,215 | |||||||||
Standby and commercial letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party. In the event of nonperformance by the customer, we have rights to the underlying collateral, which can include commercial real estate, physical plant and property, inventory, receivables, cash and/or marketable securities. Our credit risk associated with issuing letters of credit is essentially the same as the risk involved in extending loan facilities to our customers.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being fully drawn upon, the total commitment amounts disclosed above do not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if considered necessary by us, upon extension of credit, is based on management’s credit evaluation of the customer.
Loan agreements executed in connection with construction loans and commercial lines of credit have standard conditions which must be met prior to the Company being required to provide additional funding, including conditions precedent that typically include: (i) no event of default or potential default has occurred; (ii) no material adverse events have taken place that would materially affect the borrower or the value of the collateral, (iii) the borrower remains in compliance with all loan obligations and covenants and has made no misrepresentations; (iv) the collateral has not been damaged or impaired; (v) the project remains on budget and in compliance with all laws and regulations; and (vi) all management agreements, lease agreements and franchise agreements that affect the value of the collateral remain in force. If the conditions precedent have not been met, the Company retains the option to cease current draws and/or future funding. As a result of these conditions within our loan agreements, management believes the credit risk of these off balance sheet items is minimal and we recorded no ACL with respect to these loan agreements upon adoption of ASC 326 or as of December 31, 2020.
Recently Issued Accounting Pronouncements
Recently issued accounting pronouncements are summarized and discussed in Note 1 of the Notes to Consolidated Financial Statements contained in Item 8 of this report.
Impact of Inflation
Our consolidated financial statements and related notes included in "
Item 8. Financial Statements and Supplementary Data" have been prepared in accordance with GAAP. GAAP requires the measurement of financial77
position and operating results in terms of historical dollars, without considering changes in the relative value of money over time due to inflation or recession.
Unlike many industrial companies, substantially all of our assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates may not necessarily move in the same direction or in the same magnitude as the prices of goods and services. However, other operating expenses do reflect general levels of inflation.
Non-GAAP Financial Measures
Our accounting and reporting policies conform to GAAP and the prevailing practices in the banking industry. However, we also evaluate our performance based on certain additional financial measures discussed in this Annual Report on Form 10-K as being non-GAAP financial measures. We classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the United States in our statements of income, balance sheets or statements of cash flows. Non-GAAP financial measures do not include operating and other statistical measures or ratios or statistical measures calculated using exclusively either financial measures calculated in accordance with GAAP, operating measures or other measures that are not non-GAAP financial measures or both.
The non-GAAP financial measures that we discuss in this Annual Report on Form 10-K should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures that we discuss herein may differ from that of other companies reporting measures with similar names. It is important to understand how other banking organizations calculate their financial measures with names similar to the non-GAAP financial measures we have discussed in this Annual Report on Form 10-K when comparing such non-GAAP financial measures.
Tangible Book Value Per Common Share
. Tangible book value per common share is a non-GAAP measure generally used by investors, financial analysts and investment bankers to evaluate financial institutions. We calculate (1) tangible common equity as total shareholders’ equity, less goodwill, core deposit intangibles and other intangible assets, net of accumulated amortization, and (2) tangible book value per common share as tangible common equity divided by shares of common stock outstanding. The most directly comparable GAAP financial measure for tangible book value per common share is book value per common share.We believe that the tangible book value per common share measure is important to many investors in the marketplace who are interested in changes from period to period in book value per common share exclusive of changes in intangible assets. Goodwill and other intangible assets have the effect of increasing total book value while not increasing our tangible book value.
The following table reconciles, as of the dates set forth below, total shareholders’ equity to tangible common equity and presents tangible book value per common share compared to book value per common share:
|
| As of December 31, |
| |||||||||||||||||
(dollars in thousands, except per share data) |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
| |||||
Tangible Common Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity, including KSOP- owned shares |
| $ | 272,643 |
|
| $ | 261,551 |
|
| $ | 244,583 |
|
| $ | 207,345 |
|
| $ | 141,914 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
| (32,160 | ) |
|
| (32,160 | ) |
|
| (32,160 | ) |
|
| (18,742 | ) |
|
| (18,742 | ) |
Core deposit intangible, net |
|
| (2,999 | ) |
|
| (3,853 | ) |
|
| (4,706 | ) |
|
| (2,724 | ) |
|
| (3,308 | ) |
Total tangible common equity |
| $ | 237,484 |
|
| $ | 225,538 |
|
| $ | 207,717 |
|
| $ | 185,879 |
|
| $ | 119,864 |
|
Common shares outstanding(1) |
|
| 10,935,415 |
|
|
| 11,547,443 |
|
|
| 11,829,868 |
|
|
| 11,058,956 |
|
|
| 8,751,923 |
|
Book value per common share |
| $ | 24.93 |
|
| $ | 22.65 |
|
| $ | 20.68 |
|
| $ | 18.75 |
|
| $ | 16.22 |
|
Tangible book value per common share |
| $ | 21.72 |
|
| $ | 19.53 |
|
| $ | 17.56 |
|
| $ | 16.81 |
|
| $ | 13.70 |
|
| As of December 31, | |||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| (Dollars in thousands, except per share data) | |||||||||||||||||||
| Tangible Common Equity | |||||||||||||||||||
| Total shareholders’ equity, including KSOP-owned shares | $ | 207,345 | $ | 141,914 | $ | 137,736 | $ | 112,289 | $ | 97,095 | |||||||||
| Adjustments: | |||||||||||||||||||
| Goodwill | (18,742 | ) | (18,742 | ) | (18,601 | ) | (6,116 | ) | (6,436 | ) | |||||||||
| Core deposit and other intangibles | (2,724 | ) | (3,308 | ) | (3,846 | ) | (2,881 | ) | (3,310 | ) | |||||||||
| Total tangible common equity | $ | 185,879 | $ | 119,864 | $ | 115,289 | $ | 103,292 | $ | 87,349 | |||||||||
Common shares outstanding(1)(2) | 11,058,956 | 8,751,923 | 8,901,443 | 8,015,614 | 7,374,610 | ||||||||||||||
| Book value per common share | $ | 18.75 | $ | 16.22 | $ | 15.47 | $ | 14.01 | $ | 13.17 | |||||||||
| Tangible book value per common share | $ | 16.81 | $ | 13.70 | $ | 12.95 | $ | 12.89 | $ | 11.84 | |||||||||
(1) | |
Excludes the dilutive effect, if any, of |
78
Tangible book value per share increased from 20162019 to 20172020 primarily as a result of thedue to an increase in our total shareholders’ equity as a result of earnings and the issuance of new shares in our initial public offering in May 2017. Tangible book value per share increased from 2015 to 2016 primarily as a result of the increase in our total shareholders’ equity, partially offsetunrealized gains on securities, and by the recognitionrepurchase of $141,000658,607 shares of goodwill and $42,000 of core deposit intangibles related tocommon stock during the Denton acquisition.
Tangible Common Equity to Tangible Assets
. Tangible common equity to tangible assets is a non-GAAP measure generally used by investors, financial analysts and investment bankers to evaluate financial institutions. We calculate tangible common equity as described above and tangible assets as total assets less goodwill, core deposit intangibles and other intangible assets, net of accumulated amortization. The most directly comparable GAAP financial measure for tangible common equity to tangible assets is total common shareholders’ equity to total assets.We believe that this measure is important to many investors in the marketplace who are interested in the relative changes from period to period of tangible common equity to tangible assets, each exclusive of changes in intangible assets. Goodwill and other intangible assets have the effect of increasing both total shareholders’ equity and assets while not increasing our tangible common equity or tangible assets.
The following table reconciles, as of the dates set forth below, total shareholders’ equity to tangible common equity and total assets to tangible assets:
|
| As of December 31, |
| |||||||||||||||||
(dollars in thousands, except per share data) |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
| |||||
Tangible Common Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity, including KSOP- owned shares |
| $ | 272,643 |
|
| $ | 261,551 |
|
| $ | 244,583 |
|
| $ | 207,345 |
|
| $ | 141,914 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
| (32,160 | ) |
|
| (32,160 | ) |
|
| (32,160 | ) |
|
| (18,742 | ) |
|
| (18,742 | ) |
Core deposit intangible, net |
|
| (2,999 | ) |
|
| (3,853 | ) |
|
| (4,706 | ) |
|
| (2,724 | ) |
|
| (3,308 | ) |
Total tangible common equity |
| $ | 237,484 |
|
| $ | 225,538 |
|
| $ | 207,717 |
|
| $ | 185,879 |
|
| $ | 119,864 |
|
Tangible Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 2,740,832 |
|
| $ | 2,318,444 |
|
| $ | 2,266,970 |
|
| $ | 1,962,624 |
|
| $ | 1,828,336 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
| (32,160 | ) |
|
| (32,160 | ) |
|
| (32,160 | ) |
|
| (18,742 | ) |
|
| (18,742 | ) |
Core deposit intangible, net |
|
| (2,999 | ) |
|
| (3,853 | ) |
|
| (4,706 | ) |
|
| (2,724 | ) |
|
| (3,308 | ) |
Total tangible assets |
| $ | 2,705,673 |
|
| $ | 2,282,431 |
|
| $ | 2,230,104 |
|
| $ | 1,941,158 |
|
| $ | 1,806,286 |
|
Tangible Common Equity to Tangible Assets |
|
| 8.78 | % |
|
| 9.88 | % |
|
| 9.31 | % |
|
| 9.58 | % |
|
| 6.64 | % |
Core Earnings and Other COVID-19 Adjusted Measures. The following tables reconcile, as of and for the dates set forth below, various metrics impacted by the effects of COVID-19 on reported data (dollars in thousands, except per share data).
Net Core Earnings and Net Core Earnings per Common Share
|
| For The Years Ended December 31, |
| |||||
(in thousands) |
| 2020 |
|
| 2019 |
| ||
Net earnings |
| $ | 27,402 |
|
| $ | 26,279 |
|
Adjustments: |
|
|
|
|
|
|
|
|
Provision for credit losses |
|
| 13,200 |
|
|
| 1,250 |
|
Income tax provision |
|
| 5,895 |
|
|
| 5,778 |
|
PPP loans, including fees |
|
| (6,270 | ) |
|
| — |
|
Net interest expense on PPP-related borrowings |
|
| 34 |
|
|
| — |
|
Net core earnings |
| $ | 40,261 |
|
| $ | 33,307 |
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding, basic |
|
| 11,108,564 |
|
|
| 11,638,897 |
|
Earnings per common share, basic |
| $ | 2.47 |
|
| $ | 2.26 |
|
Net core earnings per common share, basic |
|
| 3.62 |
|
|
| 2.86 |
|
79
Net Core Earnings to Average Assets, as Adjusted, and Average Equity
|
| For The Years Ended December 31, |
| |||||
(in thousands) |
| 2020 |
|
| 2019 |
| ||
Net core earnings |
| $ | 40,261 |
|
| $ | 33,307 |
|
Total average assets |
| $ | 2,571,003 |
|
| $ | 2,318,939 |
|
Adjustments: |
|
|
|
|
|
|
|
|
PPP loans average balance |
|
| (138,291 | ) |
|
| — |
|
Excess fed funds sold due to PPP-related borrowings |
|
| (22,951 | ) |
|
| — |
|
Total average assets, adjusted |
| $ | 2,409,761 |
|
| $ | 2,318,939 |
|
Net core earnings to average assets, as adjusted |
|
| 1.67 |
|
|
| 1.44 |
|
Total average equity |
| $ | 263,766 |
|
| $ | 253,523 |
|
Net core earnings to average equity |
|
| 15.26 |
|
|
| 13.14 |
|
Total Non-Performing Assets to Total Loans, Excluding PPP
|
| For The Years Ended December 31, |
| |||||
(in thousands) |
| 2020 |
|
| 2019 |
| ||
Total loans(1)(2) |
| $ | 1,866,819 |
|
| $ | 1,706,395 |
|
Adjustments: |
|
|
|
|
|
|
|
|
PPP loans balance |
|
| (139,808 | ) |
|
| — |
|
Total loans, excluding PPP(1)(2) |
| $ | 1,727,011 |
|
| $ | 1,706,395 |
|
|
|
|
|
|
|
|
|
|
Total non-performing assets |
| $ | 13,115 |
|
| $ | 12,257 |
|
|
|
|
|
|
|
|
|
|
Non-performing assets as a percentage of: |
|
|
|
|
|
|
|
|
Total loans(1)(2) |
|
| 0.70 | % |
|
| 0.72 | % |
Total loans, excluding PPP(1)(2) |
|
| 0.76 |
|
|
| 0.72 |
|
|
|
|
|
|
|
|
|
|
(1) Excludes outstanding balances of loans held for sale of $5.5 million and $2.4 million as of December 31, 2020 and 2019, respectively. |
| |||||||
(2) Excludes deferred loan (fees) costs of $(1.5) million and $601,000 as of December 31, 2020 and 2019, respectively. |
| |||||||
Total Interest-Earning Assets and Borrowings, net of PPP Effects
| As of December 31, | |||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| (Dollars in thousands, except per share data) | |||||||||||||||||||
| Tangible Common Equity | |||||||||||||||||||
| Total shareholders’ equity, including KSOP-owned shares | $ | 207,345 | $ | 141,914 | $ | 137,736 | $ | 112,289 | $ | 97,095 | |||||||||
| Adjustments: | |||||||||||||||||||
| Goodwill | (18,742 | ) | (18,742 | ) | (18,601 | ) | (6,116 | ) | (6,436 | ) | |||||||||
| Core deposit and other intangibles | (2,724 | ) | (3,308 | ) | (3,846 | ) | (2,881 | ) | (3,310 | ) | |||||||||
| Total tangible common equity | $ | 185,879 | $ | 119,864 | $ | 115,289 | $ | 103,292 | $ | 87,349 | |||||||||
| Tangible Assets | |||||||||||||||||||
| Total assets | $ | 1,962,624 | $ | 1,828,336 | $ | 1,682,640 | $ | 1,334,068 | $ | 1,246,451 | |||||||||
| Adjustments: | |||||||||||||||||||
| Goodwill | (18,742 | ) | (18,742 | ) | (18,601 | ) | (6,116 | ) | (6,436 | ) | |||||||||
| Core deposit and other intangibles | (2,724 | ) | (3,308 | ) | (3,846 | ) | (2,881 | ) | (3,310 | ) | |||||||||
| Total tangible assets | $ | 1,941,158 | $ | 1,806,286 | $ | 1,660,193 | $ | 1,325,071 | $ | 1,236,705 | |||||||||
| Tangible Common Equity to Tangible Assets | 9.58 | % | 6.64 | % | 6.94 | % | 7.80 | % | 7.06 | % | |||||||||
|
| For The Year Ended December 31, 2020 |
| |||||||||
|
| Average Outstanding Balance |
|
| Interest Earned/ Interest Paid |
|
| Average Yield/ Rate |
| |||
Total interest-earning assets |
| $ | 2,404,779 |
|
| $ | 103,042 |
|
|
| 4.28 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
| 1,872,914 |
|
|
| 93,335 |
|
|
| 4.98 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
PPP loans average balance and net fees(1) |
|
| (138,291 | ) |
|
| (6,270 | ) |
|
| 4.53 |
|
Total loans, net of PPP effects |
| $ | 1,734,623 |
|
| $ | 87,065 |
|
|
| 5.02 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits in other banks |
|
| 146,659 |
|
|
| 514 |
|
|
| 0.35 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Excess fed funds sold due to PPP-related borrowings |
|
| (22,951 | ) |
|
| (23 | ) |
|
| 0.10 |
|
Total interest-bearing deposits in other banks, net of PPP effects |
| $ | 123,708 |
|
| $ | 491 |
|
|
| 0.40 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets, net of PPP effects |
| $ | 2,243,537 |
|
| $ | 96,749 |
|
|
| 4.31 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total advances from FHLB and fed funds purchased |
|
| 75,940 |
|
|
| 470 |
|
|
| 0.62 |
|
Interest expense adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
PPP-related FHLB borrowings |
|
| (22,951 | ) |
|
| (57 | ) |
|
| 0.25 |
|
Total advances from FHLB and fed funds purchased, net of PPP effects |
| $ | 52,989 |
|
| $ | 413 |
|
|
| 0.78 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Interest earned consists of interest income of $1.4 million and net origination fees recognized in earnings of $4.9 million for the year ended December 31, 2020. |
| |||||||||||
80
Net Interest Income and Net Interest Margin, Net of PPP Effects
|
| For The Year Ended December 31, 2020 |
| |||||||||
|
| Average Outstanding Balance |
|
| Interest Earned/ Interest Paid |
|
| Average Yield/ Rate |
| |||
Net interest income |
|
|
|
|
| $ | 89,982 |
|
|
|
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
PPP-related interest income |
|
|
|
|
|
| (1,404 | ) |
|
|
|
|
PPP-related net origination fees |
|
|
|
|
|
| (4,866 | ) |
|
|
|
|
Excess fed funds sold due to PPP-related borrowings |
|
|
|
|
|
| (23 | ) |
|
|
|
|
PPP-related FHLB borrowings |
|
|
|
|
|
| 57 |
|
|
|
|
|
Net interest income, net of PPP effects |
|
|
|
|
| $ | 83,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
| $ | 2,404,779 |
|
|
|
|
|
|
|
|
|
Total interest-earning assets, net of PPP effects |
|
| 2,243,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
|
| 3.74 | % |
Net interest margin, net of PPP effects |
|
|
|
|
|
|
|
|
|
| 3.73 | % |
Efficiency Ratio, Net of PPP Effects
|
| Year Ended December 31, 2020 |
| |
Total noninterest expense |
| $ | 66,522 |
|
Adjustments: |
|
|
|
|
PPP-related deferred costs |
|
| 862 |
|
Total noninterest expense, net of PPP effects |
| $ | 67,384 |
|
|
|
|
|
|
Net interest income |
|
| 89,982 |
|
Net interest income, net of PPP effects |
|
| 83,746 |
|
|
|
|
|
|
Noninterest income |
| $ | 23,037 |
|
|
|
|
|
|
Efficiency ratio(1) |
|
| 58.86 | % |
Efficiency ratio, net of PPP effects(2) |
|
| 63.10 |
|
|
|
|
|
|
(1) 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. |
| |||
(2) The efficiency ratio, net of PPP effects, was calculated by dividing total noninterest expense, net of PPP-related deferred costs, by net interest income, net of PPP effects, plus noninterest income, excluding securities gains or losses. Taxes are not part of this calculation. |
| |||
Allowance to Total Loans, as Adjusted
|
| For The Years Ended December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Total loans |
| $ | 1,866,819 |
|
| $ | 1,706,395 |
|
Adjustments: |
|
|
|
|
|
|
|
|
PPP loans balance |
|
| (139,808 | ) |
|
| — |
|
Total loans, adjusted |
| $ | 1,727,011 |
|
| $ | 1,706,395 |
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
| $ | 16,202 |
|
| $ | 14,651 |
|
Impact of adopting ASC 326 |
|
| 4,548 |
|
|
| — |
|
Loans charged-off |
|
| (543 | ) |
|
| (453 | ) |
Recoveries |
|
| 212 |
|
|
| 754 |
|
Provision for credit loss expense |
|
| 13,200 |
|
|
| 1,250 |
|
Balance at end of period |
| $ | 33,619 |
|
| $ | 16,202 |
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses / period-end loans |
|
| 1.80 | % |
|
| 0.95 | % |
Allowance for credit losses / period-end loans, as adjusted |
|
| 1.95 | % |
|
| 0.95 | % |
81
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity and Market Risk
As a financial institution, our primary component of market risk is interest rate volatility. Our asset liability and funds management policy provides management with the guidelines for effective funds management, and we have established a measurement system for monitoring our net interest rate sensitivity position. We have historically managed our sensitivity position within our established guidelines.
Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.
We manage our exposure to interest rates by structuring our balance sheet in the ordinary course of business. We do not enter into instruments such as leveraged derivatives, financial options, financial future contracts or forward delivery contracts for the purpose of reducing interest rate risk. Based upon the nature of our operations, we are not subject to foreign exchange or commodity price risk. We do not own any trading assets.
Our exposure to interest rate risk is managed by the asset-liability committee of Guaranty Bank & Trust, in accordance with policies approved by its board of directors. The committee formulates strategies based on appropriate levels of interest rate risk. In determining the appropriate level of interest rate risk, the committee considers the impact on earnings and capital on the current outlook on interest rates, potential changes in interest rates, regional economies, liquidity, business strategies and other factors. The committee meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, purchase and sale activities, commitments to originate loans and the maturities of investments and borrowings. Additionally, the committee reviews liquidity, cash flow flexibility, maturities of deposits and consumer and commercial deposit activity. Management employs methodologies to manage interest rate risk, which include an analysis of relationships between interest-earning assets and interest-bearing liabilities and an interest rate shock simulation model.
We use interest rate risk simulation models and shock analyses to test the interest rate sensitivity of net interest income and fair value of equity, and the impact of changes in interest rates on other financial metrics. Contractual maturities and re-pricing opportunities of loans are incorporated in the model as are prepayment assumptions, maturity data and call options within the investment portfolio. Average life of non-maturity deposit accounts are based on standard regulatory decay assumptions and are incorporated into the model. The assumptions used are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various management strategies.
On a quarterly basis, we run two simulation models including a static balance sheet and dynamic growth balance sheet. These models test the impact on net interest income and fair value of equity from changes in market interest rates under various scenarios. Under the static and dynamic growth models, rates are shocked instantaneously and ramped rate changes over a twelve-month horizon based upon parallel and non-parallel yield curve shifts. Parallel shock scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario. Non-parallel simulation involves analysis of interest income and expense under various changes in the shape of the yield curve. Our internal policy regarding internal rate risk simulations currently specifies that for instantaneous parallel shifts of the yield curve, estimated net income at risk for the subsequent one-year period should not decline by more than 15.0% for a 100 basis point shift, 20.0% for a 200 basis point shift and 30.0% for a 300 basis point shift.
82
The following table summarizes the simulated change in net interest income and fair value of equity over a 12-month horizon as of the dates indicated:
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||||||||||
Change in Interest Rates (Basis Points) |
| Percent Change in Net Interest Income |
|
| Percent Change in Fair Value of Equity |
|
| Percent Change in Net Interest Income |
|
| Percent Change in Fair Value of Equity |
| ||||
+300 |
|
| 4.40 | % |
|
| 5.04 | % |
|
| 0.25 | % |
|
| (0.85 | )% |
+200 |
|
| 2.62 | % |
|
| 4.45 | % |
|
| 0.30 | % |
|
| 1.17 | % |
+100 |
|
| 1.42 | % |
|
| 3.35 | % |
|
| 0.14 | % |
|
| 0.93 | % |
Base |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
-100 |
|
| (1.92 | )% |
|
| 3.96 | % |
|
| (1.78 | )% |
|
| (7.11 | )% |
| As of December 31, 2017 | As of December 31, 2016 | ||||||||||
Change in Interest Rates (Basis Points) | Percent Change in Net Interest Income | Percent Change in Fair Value of Equity | Percent Change in Net Interest Income | Percent Change in Fair Value of Equity | |||||||
| 300 | 1.70 | % | (14.25 | )% | 1.44 | % | (18.99 | )% | |||
| 200 | 1.67 | % | (6.77 | )% | 1.42 | % | (9.58 | )% | |||
| 100 | 1.46 | % | (2.10 | )% | 1.19 | % | (3.45 | )% | |||
| Base | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | |||
| (100) | 0.05 | % | (4.22 | )% | (0.29 | )% | (1.80 | )% | |||
The results are primarily due to behavior of demand, money market and savings deposits during such rate fluctuations. We have found that, historically, interest rates on these deposits change more slowly than changes in the discount and federal funds rates. This assumption is incorporated into the simulation model and is generally not fully reflected in a gap analysis. The assumptions incorporated into the model are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various strategies.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, the reports thereon, the notes thereto and supplementary data commence on page F-1 of this Annual Report on Form 10-K. See “
Item 15. Exhibits and Financial Statement Schedules.”Quarterly Financial Information
The following tables present certain unaudited consolidated quarterly financial information regarding the Company's results of operations for each of the eight consecutive quarters in the fiscal years of 20172020 and 2016.2019. This information is derived from unaudited consolidated financial statements that include, in our opinion, all adjustments necessary for a fair presentation when read in conjunction with the Company's consolidated financial statements and notes thereto as of and for the years ended December 31, 20172020 and 20162019 appearing elsewhere in this Annual Report on Form 10-K.
| 2020 |
| |||||||||||||||||||||||||||||
| (Dollars in Thousands, except Per Share Amounts) | |||||||||||||||||||||||||||||||
| 2017 | |||||||||||||||||||||||||||||||
| 4th Quarter | 3rd Quarter | 2nd Quarter | 1st Quarter | ||||||||||||||||||||||||||||
(dollars in thousands, except per share data) |
| 4th Quarter |
|
| 3rd Quarter |
|
| 2nd Quarter |
|
| 1st Quarter |
| |||||||||||||||||||
| Interest income | $ | 18,689 | $ | 18,165 | $ | 17,792 | $ | 17,136 |
| $ | 26,253 |
|
| $ | 24,956 |
|
| $ | 26,581 |
|
| $ | 25,252 |
| |||||||
| Interest expense | 3,201 | 3,063 | 2,993 | 2,895 |
|
| 2,301 |
|
|
| 2,677 |
|
|
| 3,399 |
|
|
| 4,683 |
| |||||||||||
| Net interest income | 15,488 | 15,102 | 14,799 | 14,241 |
|
| 23,952 |
|
|
| 22,279 |
|
|
| 23,182 |
|
|
| 20,569 |
| |||||||||||
| Provision for loan losses | 600 | 800 | 800 | 650 | |||||||||||||||||||||||||||
| Net interest income after provision for loan losses | 14,888 | 14,302 | 13,999 | 13,591 | |||||||||||||||||||||||||||
Provision for credit losses |
|
| — |
|
|
| (300 | ) |
|
| 12,100 |
|
|
| 1,400 |
| |||||||||||||||
Net interest income after provision for credit losses |
|
| 23,952 |
|
|
| 22,579 |
|
|
| 11,082 |
|
|
| 19,169 |
| |||||||||||||||
| Noninterest income | 3,779 | 3,702 | 3,516 | 3,282 |
|
| 6,426 |
|
|
| 6,663 |
|
|
| 4,987 |
|
|
| 4,961 |
| |||||||||||
| Noninterest expense | 12,265 | 12,166 | 11,906 | 12,045 |
|
| 18,173 |
|
|
| 16,758 |
|
|
| 15,184 |
|
|
| 16,407 |
| |||||||||||
| Income tax provision | 3,594 | 1,699 | 1,633 | 1,312 |
|
| 2,290 |
|
|
| 2,350 |
|
|
| (190 | ) |
|
| 1,445 |
| |||||||||||
| Net earnings | $ | 2,808 | $ | 4,139 | $ | 3,976 | $ | 3,516 |
| $ | 9,915 |
|
| $ | 10,134 |
|
| $ | 1,075 |
|
| $ | 6,278 |
| |||||||
| Earnings per common share, basic | $ | 0.25 | $ | 0.37 | $ | 0.40 | $ | 0.40 |
| $ | 0.90 |
|
| $ | 0.92 |
|
| $ | 0.10 |
|
| $ | 0.55 |
| |||||||
| Earnings per common share, diluted | $ | 0.25 | $ | 0.37 | $ | 0.39 | $ | 0.40 |
| $ | 0.90 |
|
| $ | 0.92 |
|
| $ | 0.10 |
|
| $ | 0.55 |
| |||||||
|
| 2019 |
| |||||||||||||
(dollars in thousands, except per share data) |
| 4th Quarter |
|
| 3rd Quarter |
|
| 2nd Quarter |
|
| 1st Quarter |
| ||||
Interest income |
| $ | 25,848 |
|
| $ | 25,853 |
|
| $ | 25,553 |
|
| $ | 25,307 |
|
Interest expense |
|
| 5,354 |
|
|
| 5,770 |
|
|
| 6,267 |
|
|
| 6,300 |
|
Net interest income |
|
| 20,494 |
|
|
| 20,083 |
|
|
| 19,286 |
|
|
| 19,007 |
|
Provision for loan losses |
|
| — |
|
|
| 100 |
|
|
| 575 |
|
|
| 575 |
|
Net interest income after provision for loan losses |
|
| 20,494 |
|
|
| 19,983 |
|
|
| 18,711 |
|
|
| 18,432 |
|
Noninterest income |
|
| 4,674 |
|
|
| 4,616 |
|
|
| 4,110 |
|
|
| 3,562 |
|
Noninterest expense |
|
| 16,226 |
|
|
| 15,435 |
|
|
| 15,394 |
|
|
| 15,470 |
|
Income tax provision |
|
| 1,573 |
|
|
| 1,634 |
|
|
| 1,384 |
|
|
| 1,187 |
|
Net earnings |
| $ | 7,369 |
|
| $ | 7,530 |
|
| $ | 6,043 |
|
| $ | 5,337 |
|
Earnings per common share, basic |
| $ | 0.64 |
|
| $ | 0.65 |
|
| $ | 0.52 |
|
| $ | 0.45 |
|
Earnings per common share, diluted |
| $ | 0.63 |
|
| $ | 0.65 |
|
| $ | 0.52 |
|
| $ | 0.45 |
|
| (Dollars in Thousands, except Per Share Amounts) | |||||||||||||||
| 2016 | |||||||||||||||
| 4th Quarter | 3rd Quarter | 2nd Quarter | 1st Quarter | ||||||||||||
| Interest income | $ | 16,717 | $ | 16,427 | $ | 16,095 | $ | 15,469 | |||||||
| Interest expense | 2,692 | 2,759 | 2,751 | 2,666 | |||||||||||
| Net interest income | 14,025 | 13,668 | 13,344 | 12,803 | |||||||||||
| Provision for loan losses | 400 | 840 | 1,950 | 450 | |||||||||||
| Net interest income after provision for loan losses | 13,625 | 12,828 | 11,394 | 12,353 | |||||||||||
| Noninterest income | 3,414 | 3,402 | 3,309 | 2,891 | |||||||||||
| Noninterest expense | 12,040 | 11,480 | 11,383 | 11,477 | |||||||||||
| Income tax provision | 1,425 | 1,380 | 820 | 1,090 | |||||||||||
| Net earnings | $ | 3,574 | $ | 3,370 | $ | 2,500 | $ | 2,677 | |||||||
| Earnings per common share, basic | $ | 0.40 | $ | 0.38 | $ | 0.27 | $ | 0.30 | |||||||
| Earnings per common share, diluted | $ | 0.40 | $ | 0.38 | $ | 0.27 | $ | 0.30 | |||||||
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNT AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
. As of the end of the period covered by this Annual Report on Form 10‑K, the Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply judgment in evaluating its controls and procedures. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a‑15(e) and 15d‑15(e) under the Exchange Act, were effective as of the end of the period covered by this report.Changes in internal control over financial reporting
. There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act) that occurred during the quarter ended December 31,Report on Management’s Assessment of Internal Control Over Financial Reporting
. Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). The Company’s internal control system is a process designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements in accordance with GAAP. All internal control systems, no matter how well designed, have inherent limitations and can only provide reasonable assurance with respect to financial reporting.As of December 31, 2017,2020, management assessed the effectiveness of the Company’s internal control over financial reporting based on the criteria for effective internal control over financial reporting established in “Internal Control—Integrated Framework,” issued by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission in 2013. This assessment included controls over the preparation of the schedules equivalent to the basic financial statements in accordance with the instructions for the Consolidated Financial Statements for Bank Holding Companies (Form FR Y‑9C) to meet the reporting requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act. Based on the assessment management determined that the Company maintained effective internal control over financial reporting as of December 31, 2017.
Whitley Penn LLP, an independent registered public accounting firm, audited the consolidated financial statements of the Company for the years ended December 31, 2017, 20162020, 2019 and 20152018 included in this Annual Report on Form 10‑K. Their report is included in “Item 15. Exhibits and Financial Statement Schedules” under the heading “Report of Independent Registered Public Accounting Firm.” This Annual Report on Form 10‑K does not include an attestation report
84
of the Company’s registered public accounting firm on the Company’s internal control over financial reporting due to a transition period established by rules of the SEC for an Emerging Growth Company.
ITEM 9B. OTHER INFORMATION
On March 11, 2020, the Board of Directors of the Company approved a new stock repurchase program, which authorizes Guaranty to repurchase up to 1,000,000 shares of Guaranty’s outstanding common stock from time to time, subject to certain conditions. The stock repurchase program will be effective from March 13, 2020 until the earlier of March 13, 2022 or the date all shares authorized for repurchase under the program have been repurchased, unless shortened or extended by the board of directors. The stock repurchase program does not obligate Guaranty to repurchase any specified number of shares of its common stock.
Repurchases under this program were temporarily suspended in April of 2020 in light of the uncertainties presented by the COVID-19 pandemic and surrounding events. At the time that the stock repurchase program was temporarily suspended, the Company had repurchased 315,509 shares under the stock repurchase program. The Company’s Board of Directors approved the resumption of the stock repurchase program in September of 2020.
The shares may be purchased in open market transactions (including under Rule 10b5-1 repurchase plans) or negotiated transactions. Repurchases will be conducted in accordance with the limitations set forth in Rule 10b-18 of the Securities and Exchange and Commission and other applicable legal requirements. The number, price and timing of the repurchases, if any, will be at management’s sole discretion and will depend on a number of factors, including compliance with applicable laws and regulations, general market and economic conditions, the financial and regulatory condition of Guaranty, liquidity needs, and other factors. There is no assurance that Guaranty will repurchase any shares under the program. In connection with the approval of the new stock repurchase program, the Board of Directors terminated the Company’s existing stock repurchase program, which was previously announced on June 13, 2019.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information called for by this item is incorporated herein by reference from our Definitive Proxy Statement for our Annual Meeting of Shareholders being held on May 19, 2018,2021, a copy of which will be filed with the SEC within 120 days of the end of the fiscal year ended December 31, 2017.
ITEM 11. EXECUTIVE COMPENSATION.
The information called for by this item is incorporated herein by reference from our Definitive Proxy Statement for our Annual Meeting of Shareholders being held on May 19, 2018,2021, a copy of which will be filed with the SEC within 120 days of the end of the fiscal year ended December 31, 2017.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The information called for by this item related to security ownership of certain beneficial owners and management is incorporated herein by reference from our Definitive Proxy Statement for our Annual Meeting of Shareholders being held on May 19, 2021, a copy of which will be filed with the SEC within 120 days of the end of the fiscal year ended December 31, 2020.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information called for by this item is incorporated herein by reference from our Definitive Proxy Statement for our Annual Meeting of Shareholders being held on May 19, 2018,2021, a copy of which will be filed with the SEC within 120 days of the end of the fiscal year ended December 31, 2017.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information concerning principal accounting fees and services is incorporated herein by reference from our Definitive Proxy Statement for our Annual Meeting of Shareholders being held on May 19, 2018,2021, a copy of which will be filed with the SEC within 120 days of the end of the fiscal year ended December 31, 2017.
85
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this Annual Report on Form 10-K:
1.
Consolidated Financial Statements. Reference is made to the Consolidated Financial Statements, the report thereon and the notes thereto commencing at page F-1 of this Annual Report on Form 10-K. Set forth below is a list of such Consolidated Financial Statements.• | Report of Independent Registered Public Accounting Firm; |
• | Consolidated Balance Sheets as of December 31, 2020 and 2019; |
• | Consolidated Statements of Earnings for the Years Ended December 31, 2020, 2019 and 2018; |
• | Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2020, 2019 and 2018; |
• | Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 2020, 2019 and 2018; |
• | Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018; |
• | Notes to Consolidated Financial Statements. |
2.Financial Statement Schedules. All supplemental schedules are omitted as inapplicable or because the required information is included in the Consolidated Financial Statements or notes thereto.
3.The exhibits to thisthis Annual Report on Form 10-K listed below have been included only with the copy of this report filed with the SEC. The Company will furnish a copy of any exhibit to shareholders upon written request to the Company and payment of a reasonable fee not to exceed the Company’s reasonable expense.
Each exhibit marked with an asterisk is filed or furnished with this Annual Report on Form 10-K as noted below:
Exhibit No. | Description | ||
2.1 | |||
3.1 | |||
3.2 | |||
4.1 | |||
The other instruments defining the rights of the long-term debt securities of Guaranty Bancshares, Inc. and its subsidiaries are omitted pursuant to section (b)(4)(iii)(A) of Item 601 of Regulation S-K. Guaranty Bancshares, Inc. hereby agrees to furnish copies of these instruments to the SEC upon request. | |||
4.2 | |||
10.1† | |||
10.2† | |||
10.3† | |||
10.4† | |||
86
Exhibit No. | Description | |
10.5† | ||
10.6† | ||
10.7† | ||
10.8† | ||
10.9† | ||
10.10† | ||
10.11† | ||
10.12† | ||
10.13† | ||
10.14† | ||
10.15† | ||
10.16 | ||
10.17 | ||
10.18 | ||
10.19 |
87
Exhibit No. | Description | |
21.1 | ||
23.1 | ||
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101.INS | XBRL Instance Document* | |
101.SCH | XBRL Taxonomy Extension Schema Document* | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document* | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document* | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document* | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document* |
* | Filed with this Annual Report on Form 10-K. |
** | Furnished with this Annual Report on Form 10-K. |
† | Represents a management contract or a compensatory plan or arrangement. |
ITEM 16. FORM 10-K
None.
88
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: March | GUARANTY BANCSHARES, INC. | |
By: | /s/ Tyson T. Abston | |
Name: | Tyson T. Abston | |
Title: | Chairman of the Board & Chief Executive Officer | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons, on behalf of the registrant and in the capacities and on the dates indicated.
Name | Title | Date | ||
/s/ Tyson T. Abston | Chairman and Chief Executive Officer | 3/ | ||
Tyson T. Abston | (Principal Executive Officer) | |||
/s/ Clifton A. Payne | Senior Executive Vice President and Chief Financial Officer | 3/ | ||
Clifton A. Payne | (Principal Financial and Accounting Officer) | |||
/s/ Kirk L. Lee | President | 3/ | ||
Kirk L. Lee | ||||
/s/ Randall R. Kucera | Vice President and General Counsel | 3/ | ||
Randall R. Kucera | ||||
/s/ Richard W. Baker | Director | 3/ | ||
Richard W. Baker | ||||
/s/ Jeffrey W. Brown | Director | 3/12/2021 | ||
Jeffrey W. Brown | ||||
/s/ James S. Bunch | Director | 3/ | ||
James S. Bunch | ||||
/s/ Molly S. Curl | Director | 3/ | ||
Molly S. Curl | ||||
/s/ Bradley K. Drake | Director | 3/ | ||
Bradley K. Drake | ||||
/s/ Christopher B. Elliott | Director | 3/ | ||
Christopher B. Elliott | ||||
/s/ Carl Johnson, Jr. | Director | 3/ | ||
Carl Johnson, Jr. | ||||
/s/ | Director | 3/ | ||
James M. Nolan, Jr. | ||||
/s/ William D. Priefert | Director | 3/ | ||
William D. Priefert | ||||
INDEX TO FINANCIAL STATEMENTS
Audited Consolidated Financial Statements of Guaranty Bancshares, Inc. as of December 31, 20172020 and 20162019 and for each of the three years ending December 31, 2017, 20162020, 2019 and 2015.
F-2 | ||
F-3 | ||
Consolidated Statements of Earnings for the Years Ended December 31, | F-4 | |
Consolidated Statements of | F-5 | |
Consolidated Statements of | F-6 | |
Consolidated Statements of | F-7 | |
| ||
F-9 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Guaranty Bancshares, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Guaranty Bancshares, Inc. (the “Company”), as of December 31, 20172020 and 2016,2019, and the related consolidated statements of earnings, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 20172020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172020 and 2016,2019, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2017,2020, in conformity with accounting principles generally accepted in the United States of America.
Adoption of ASU 2016-13
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for credit losses in 2020 due to the adoption of Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and the related amendments.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of itstheir internal control over financial reporting in accordance with the standards of the PCAOB. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ WHITLEY PENN LLP
We have served as the Company's auditor since 2015.
Plano, Texas
March 12, 2021
GUARANTY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 20172020 and 2016
(Dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
| 2020 |
|
| 2019 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Cash and due from banks |
| $ | 47,836 |
|
| $ | 39,907 |
|
Federal funds sold |
|
| 218,825 |
|
|
| 45,246 |
|
Interest-bearing deposits |
|
| 85,130 |
|
|
| 5,561 |
|
Total cash and cash equivalents |
|
| 351,791 |
|
|
| 90,714 |
|
Securities available for sale |
|
| 380,795 |
|
|
| 212,716 |
|
Securities held to maturity |
|
| — |
|
|
| 155,458 |
|
Loans held for sale |
|
| 5,542 |
|
|
| 2,368 |
|
Loans, net of allowance for credit losses of $33,619 and $16,202, respectively |
|
| 1,831,737 |
|
|
| 1,690,794 |
|
Accrued interest receivable |
|
| 9,834 |
|
|
| 9,151 |
|
Premises and equipment, net |
|
| 55,212 |
|
|
| 53,431 |
|
Other real estate owned |
|
| 404 |
|
|
| 603 |
|
Cash surrender value of life insurance |
|
| 35,510 |
|
|
| 34,495 |
|
Core deposit intangible, net |
|
| 2,999 |
|
|
| 3,853 |
|
Goodwill |
|
| 32,160 |
|
|
| 32,160 |
|
Other assets |
|
| 34,848 |
|
|
| 32,701 |
|
Total assets |
| $ | 2,740,832 |
|
| $ | 2,318,444 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
Noninterest-bearing |
| $ | 779,740 |
|
| $ | 525,865 |
|
Interest-bearing |
|
| 1,506,650 |
|
|
| 1,430,939 |
|
Total deposits |
|
| 2,286,390 |
|
|
| 1,956,804 |
|
Securities sold under agreements to repurchase |
|
| 15,631 |
|
|
| 11,100 |
|
Accrued interest and other liabilities |
|
| 25,257 |
|
|
| 23,061 |
|
Line of credit |
|
| 12,000 |
|
|
| — |
|
Federal Home Loan Bank advances |
|
| 109,101 |
|
|
| 55,118 |
|
Subordinated debentures |
|
| 19,810 |
|
|
| 10,810 |
|
Total liabilities |
|
| 2,468,189 |
|
|
| 2,056,893 |
|
Commitments and contingencies (see Note 17) |
|
|
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
|
|
|
|
Preferred stock, $5.00 par value, 15,000,000 shares authorized, 0 shares issued |
|
| 0 |
|
|
| 0 |
|
Common stock, $1.00 par value, 50,000,000 shares authorized, 12,951,676 and 12,905,097 shares issued, and 10,935,415 and 11,547,443 shares outstanding, respectively |
|
| 12,952 |
|
|
| 12,905 |
|
Additional paid-in capital |
|
| 188,032 |
|
|
| 186,692 |
|
Retained earnings |
|
| 113,449 |
|
|
| 98,239 |
|
Treasury stock, 2,016,261 and 1,357,654 shares at cost |
|
| (51,419 | ) |
|
| (34,492 | ) |
Accumulated other comprehensive income (loss) |
|
| 9,629 |
|
|
| (1,793 | ) |
Total shareholders' equity |
|
| 272,643 |
|
|
| 261,551 |
|
Total liabilities and shareholders' equity |
| $ | 2,740,832 |
|
| $ | 2,318,444 |
|
| 2017 | 2016 | ||||||
| ASSETS | |||||||
| Cash and due from banks | $ | 40,482 | $ | 39,605 | |||
| Federal funds sold | 26,175 | 60,600 | |||||
| Interest-bearing deposits | 24,771 | 27,338 | |||||
| Total cash and cash equivalents | 91,428 | 127,543 | |||||
| Securities available for sale | 232,372 | 156,925 | |||||
| Securities held to maturity | 174,684 | 189,371 | |||||
| Loans held for sale | 1,896 | 2,563 | |||||
| Loans, net | 1,347,779 | 1,233,651 | |||||
| Accrued interest receivable | 8,174 | 7,419 | |||||
| Premises and equipment, net | 43,818 | 44,810 | |||||
| Other real estate owned | 2,244 | 1,692 | |||||
| Cash surrender value of life insurance | 19,117 | 17,804 | |||||
| Deferred tax asset | 2,543 | 4,892 | |||||
| Core deposit intangible, net | 2,724 | 3,308 | |||||
| Goodwill | 18,742 | 18,742 | |||||
| Other assets | 17,103 | 19,616 | |||||
| Total assets | $ | 1,962,624 | $ | 1,828,336 | |||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
| Liabilities | |||||||
| Deposits | |||||||
| Noninterest-bearing | $ | 410,009 | $ | 358,752 | |||
| Interest-bearing | 1,266,311 | 1,218,039 | |||||
| Total deposits | 1,676,320 | 1,576,791 | |||||
| Securities sold under agreements to repurchase | 12,879 | 10,859 | |||||
| Accrued interest and other liabilities | 7,117 | 6,006 | |||||
| Other debt | — | 18,286 | |||||
| Federal Home Loan Bank advances | 45,153 | 55,170 | |||||
| Subordinated debentures | 13,810 | 19,310 | |||||
| Total liabilities | 1,755,279 | 1,686,422 | |||||
| Commitments and contingent liabilities | |||||||
| KSOP-owned shares | — | 31,661 | |||||
| Shareholders’ equity | |||||||
| Preferred stock, $5.00 par value, 15,000,000 shares authorized, no shares issued | — | — | |||||
| Common stock, $1.00 par value, 50,000,000 shares authorized, 11,921,298 and 9,616,275 shares issued, and 11,058,956 and 8,751,923 shares outstanding, respectively | 11,921 | 9,616 | |||||
| Additional paid-in capital | 155,601 | 101,736 | |||||
| Retained earnings | 66,037 | 57,160 | |||||
| Treasury stock, 862,342 and 864,352 shares at cost | (20,087 | ) | (20,111 | ) | |||
| Accumulated other comprehensive loss | (6,127 | ) | (6,487 | ) | |||
| 207,345 | 141,914 | ||||||
| Less KSOP-owned shares | — | 31,661 | |||||
| Total shareholders’ equity | 207,345 | 110,253 | |||||
| Total liabilities and shareholders' equity | $ | 1,962,624 | $ | 1,828,336 | |||
See accompanying notes to consolidated financial statements
GUARANTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
For the Years ended December 31, 2017, 20162020, 2019 and 2015
(Dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees |
| $ | 93,335 |
|
| $ | 90,980 |
|
| $ | 77,170 |
|
Securities |
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
| 4,565 |
|
|
| 5,916 |
|
|
| 6,317 |
|
Nontaxable |
|
| 4,189 |
|
|
| 3,830 |
|
|
| 3,770 |
|
Federal funds sold and interest-bearing deposits |
|
| 953 |
|
|
| 1,835 |
|
|
| 1,201 |
|
Total interest income |
|
| 103,042 |
|
|
| 102,561 |
|
|
| 88,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
| 11,624 |
|
|
| 21,611 |
|
|
| 16,941 |
|
FHLB advances and federal funds purchased |
|
| 470 |
|
|
| 1,389 |
|
|
| 1,865 |
|
Subordinated debentures |
|
| 702 |
|
|
| 648 |
|
|
| 687 |
|
Other borrowed money |
|
| 264 |
|
|
| 43 |
|
|
| 49 |
|
Total interest expense |
|
| 13,060 |
|
|
| 23,691 |
|
|
| 19,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
| 89,982 |
|
|
| 78,870 |
|
|
| 68,916 |
|
Provision for credit losses |
|
| 13,200 |
|
|
| 1,250 |
|
|
| 2,250 |
|
Net interest income after provision for credit losses |
|
| 76,782 |
|
|
| 77,620 |
|
|
| 66,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income |
|
|
|
|
|
|
|
|
|
|
|
|
Service charges |
|
| 3,064 |
|
|
| 3,715 |
|
|
| 3,600 |
|
Net realized loss on securities transactions |
|
| — |
|
|
| (22 | ) |
|
| (50 | ) |
Net realized gain on sale of loans |
|
| 6,834 |
|
|
| 2,850 |
|
|
| 2,308 |
|
Other income |
|
| 13,139 |
|
|
| 10,419 |
|
|
| 9,445 |
|
Total noninterest income |
|
| 23,037 |
|
|
| 16,962 |
|
|
| 15,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits |
|
| 37,193 |
|
|
| 35,907 |
|
|
| 32,122 |
|
Occupancy expenses |
|
| 10,220 |
|
|
| 9,834 |
|
|
| 8,398 |
|
Other expenses |
|
| 19,109 |
|
|
| 16,784 |
|
|
| 16,254 |
|
Total noninterest expense |
|
| 66,522 |
|
|
| 62,525 |
|
|
| 56,774 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
| 33,297 |
|
|
| 32,057 |
|
|
| 25,195 |
|
Income tax provision |
|
| 5,895 |
|
|
| 5,778 |
|
|
| 4,599 |
|
Net earnings |
| $ | 27,402 |
|
| $ | 26,279 |
|
| $ | 20,596 |
|
Basic earnings per share |
| $ | 2.47 |
|
| $ | 2.26 |
|
| $ | 1.78 |
|
Diluted earnings per share |
| $ | 2.46 |
|
| $ | 2.25 |
|
| $ | 1.77 |
|
| 2017 | 2016 | 2015 | |||||||||
| Interest income | |||||||||||
| Loans, including fees | $ | 61,014 | $ | 55,565 | $ | 47,845 | |||||
| Securities | |||||||||||
| Taxable | 5,811 | 5,170 | 6,317 | ||||||||
| Nontaxable | 3,679 | 3,231 | 1,529 | ||||||||
| Federal funds sold and interest-bearing deposits | 1,278 | 742 | 391 | ||||||||
| Total interest income | 71,782 | 64,708 | 56,082 | ||||||||
| Interest expense | |||||||||||
| Deposits | 10,604 | 9,050 | 6,524 | ||||||||
| FHLB advances and federal funds purchased | 472 | 350 | 699 | ||||||||
| Subordinated debentures | 724 | 882 | 603 | ||||||||
| Other borrowed money | 352 | 586 | 497 | ||||||||
| Total interest expense | 12,152 | 10,868 | 8,323 | ||||||||
| Net interest income | 59,630 | 53,840 | 47,759 | ||||||||
| Provision for loan losses | 2,850 | 3,640 | 2,175 | ||||||||
| Net interest income after provision for loan losses | 56,780 | 50,200 | 45,584 | ||||||||
| Noninterest income | |||||||||||
| Service charges | 3,746 | 3,530 | 3,493 | ||||||||
| Net realized gain on securities transactions | 167 | 82 | 77 | ||||||||
| Net realized gain on sales of loans | 1,981 | 1,718 | 1,053 | ||||||||
| Other operating income | 8,385 | 7,686 | 6,860 | ||||||||
| Total noninterest income | 14,279 | 13,016 | 11,483 | ||||||||
| Noninterest expense | |||||||||||
| Employee compensation and benefits | 27,078 | 25,611 | 22,469 | ||||||||
| Occupancy expenses | 7,400 | 6,870 | 6,468 | ||||||||
| Other operating expenses | 13,904 | 13,899 | 13,657 | ||||||||
| Total noninterest expense | 48,382 | 46,380 | 42,594 | ||||||||
| Income before income taxes | 22,677 | 16,836 | 14,473 | ||||||||
| Income tax provision | 8,238 | 4,715 | 4,362 | ||||||||
| Net earnings | $ | 14,439 | $ | 12,121 | $ | 10,111 | |||||
| Basic earnings per share | $ | 1.41 | $ | 1.35 | $ | 1.15 | |||||
| Diluted earnings per share | $ | 1.40 | $ | 1.35 | $ | 1.15 | |||||
See accompanying notes to consolidated financial statements.
GUARANTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years ended December 31, 2017
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Net earnings |
| $ | 27,402 |
|
| $ | 26,279 |
|
| $ | 20,596 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on securities |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during the period |
|
| 12,929 |
|
|
| 9,474 |
|
|
| (3,543 | ) |
Unrealized gains on held to maturity securities transferred to available for sale |
|
| 2,265 |
|
|
| — |
|
|
| — |
|
Amortization of net unrealized gains on held to maturity securities |
|
| 46 |
|
|
| 18 |
|
|
| 32 |
|
Reclassification adjustment for net losses included in net earnings |
|
| — |
|
|
| 22 |
|
|
| 50 |
|
Tax effect |
|
| (3,193 | ) |
|
| (2,012 | ) |
|
| 734 |
|
Unrealized gains (losses) on securities, net of tax |
|
| 12,047 |
|
|
| 7,502 |
|
|
| (2,727 | ) |
Unrealized holding (losses) gains arising during the period on interest rate swaps |
|
| (625 | ) |
|
| (133 | ) |
|
| 178 |
|
Total other comprehensive income (loss) |
|
| 11,422 |
|
|
| 7,369 |
|
|
| (2,549 | ) |
Comprehensive income |
| $ | 38,824 |
|
| $ | 33,648 |
|
| $ | 18,047 |
|
| 2017 | 2016 | 2015 | |||||||||
| Net earnings | $ | 14,439 | $ | 12,121 | $ | 10,111 | |||||
| Other comprehensive income (loss): | |||||||||||
| Unrealized gains (losses) on securities | |||||||||||
| Unrealized holding losses arising during the period | (54 | ) | (83 | ) | (1,152 | ) | |||||
| Amortization of net unrealized gains on held to maturity securities | 377 | 113 | 92 | ||||||||
| Reclassification adjustment for net gains included in net earnings | (167 | ) | (82 | ) | (77 | ) | |||||
| Tax effect | 80 | 58 | 430 | ||||||||
| Unrealized gains (losses) on securities, net of tax | 236 | 6 | (707 | ) | |||||||
| Unrealized holding gains (losses) arising during the period on interest rate swaps | 124 | 80 | (42 | ) | |||||||
| Total other comprehensive income (loss) | 360 | 86 | (749 | ) | |||||||
| Comprehensive income | $ | 14,799 | $ | 12,207 | $ | 9,362 | |||||
See accompanying notes to consolidated financial statements.
GUARANTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Years ended December 31, 2017, 20162020, 2019 and 2015
(Dollars in thousands)
|
| Preferred Stock |
|
| Common Stock |
|
| Additional Paid-in Capital |
|
| Retained Earnings |
|
| Treasury Stock |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Total Shareholders’ Equity |
| |||||||
Balance at December 31, 2017 |
| $ | — |
|
| $ | 11,921 |
|
| $ | 155,601 |
|
| $ | 66,037 |
|
| $ | (20,087 | ) |
| $ | (6,127 | ) |
| $ | 207,345 |
|
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 20,596 |
|
|
| — |
|
|
| — |
|
|
| 20,596 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,549 | ) |
|
| (2,549 | ) |
Reclassification of certain tax effects from accumulated other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 486 |
|
|
| — |
|
|
| (486 | ) |
|
| — |
|
Exercise of stock options |
|
| — |
|
|
| 14 |
|
|
| 313 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 327 |
|
Purchase of treasury stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,265 | ) |
|
| — |
|
|
| (4,265 | ) |
Issuance of common stock |
|
| — |
|
|
| 900 |
|
|
| 28,668 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 29,568 |
|
Stock based compensation |
|
| — |
|
|
| — |
|
|
| 592 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 592 |
|
Dividends: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common - $0.60 per share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7,031 | ) |
|
| — |
|
|
| — |
|
|
| (7,031 | ) |
Balance at December 31, 2018 |
|
| — |
|
|
| 12,835 |
|
|
| 185,174 |
|
|
| 80,088 |
|
|
| (24,352 | ) |
|
| (9,162 | ) |
|
| 244,583 |
|
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 26,279 |
|
|
| — |
|
|
| — |
|
|
| 26,279 |
|
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,369 |
|
|
| 7,369 |
|
Exercise of stock options |
|
| — |
|
|
| 39 |
|
|
| 886 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 925 |
|
Purchase of treasury stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (10,140 | ) |
|
| — |
|
|
| (10,140 | ) |
Restricted stock grants |
|
| — |
|
|
| 31 |
|
|
| (31 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Stock based compensation |
|
| — |
|
|
| — |
|
|
| 663 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 663 |
|
Dividends: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common - $0.70 per share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8,128 | ) |
|
| — |
|
|
| — |
|
|
| (8,128 | ) |
Balance at December 31, 2019 |
|
| — |
|
|
| 12,905 |
|
|
| 186,692 |
|
|
| 98,239 |
|
|
| (34,492 | ) |
|
| (1,793 | ) |
|
| 261,551 |
|
Impact of adoption of ASC 326, net of tax of $955 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,593 | ) |
|
| — |
|
|
| — |
|
|
| (3,593 | ) |
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 27,402 |
|
|
| — |
|
|
| — |
|
|
| 27,402 |
|
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,422 |
|
|
| 11,422 |
|
Exercise of stock options |
|
| — |
|
|
| 27 |
|
|
| 611 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 638 |
|
Purchase of treasury stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (16,927 | ) |
|
| — |
|
|
| (16,927 | ) |
Restricted stock grants |
|
| — |
|
|
| 20 |
|
|
| (20 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Stock based compensation |
|
| — |
|
|
| — |
|
|
| 749 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 749 |
|
Dividends: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common - $0.78 per share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8,599 | ) |
|
| — |
|
|
| — |
|
|
| (8,599 | ) |
Balance at December 31, 2020 |
| $ | — |
|
| $ | 12,952 |
|
| $ | 188,032 |
|
| $ | 113,449 |
|
| $ | (51,419 | ) |
| $ | 9,629 |
|
| $ | 272,643 |
|
See accompanying notes to consolidated financial statements.
GUARANTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years ended December 31, 2020, 2019 and 2018
(Dollars in thousands)
|
|
|
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
| $ | 27,402 |
|
| $ | 26,279 |
|
| $ | 20,596 |
|
Adjustments to reconcile net earnings to net cash provided from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
| 4,117 |
|
|
| 3,886 |
|
|
| 3,400 |
|
Amortization |
|
| 1,349 |
|
|
| 1,378 |
|
|
| 1,228 |
|
Deferred taxes |
|
| (3,056 | ) |
|
| (534 | ) |
|
| 68 |
|
Premium amortization, net of discount accretion |
|
| 3,988 |
|
|
| 3,820 |
|
|
| 4,210 |
|
Net realized loss on securities transactions |
|
| 0 |
|
|
| 22 |
|
|
| 50 |
|
Gain on sale of loans |
|
| (6,834 | ) |
|
| (2,850 | ) |
|
| (2,308 | ) |
Gain on sale of branch operations |
|
| 0 |
|
|
| 0 |
|
|
| (830 | ) |
Provision for credit losses |
|
| 13,200 |
|
|
| 1,250 |
|
|
| 2,250 |
|
Origination of loans held for sale |
|
| (161,169 | ) |
|
| (76,011 | ) |
|
| (70,841 | ) |
Proceeds from loans held for sale |
|
| 164,829 |
|
|
| 78,288 |
|
|
| 73,250 |
|
Write-down of other real estate and repossessed assets |
|
| 358 |
|
|
| 343 |
|
|
| 407 |
|
Net loss (gain) on sale of premises, equipment, other real estate owned and other assets |
|
| 37 |
|
|
| 78 |
|
|
| (133 | ) |
Stock based compensation |
|
| 749 |
|
|
| 663 |
|
|
| 592 |
|
Net change in accrued interest receivable and other assets |
|
| (3,908 | ) |
|
| (16,698 | ) |
|
| (5,955 | ) |
Net change in accrued interest payable and other liabilities |
|
| 1,459 |
|
|
| 12,132 |
|
|
| 2,230 |
|
Net cash provided by operating activities |
|
| 42,521 |
|
|
| 32,046 |
|
|
| 28,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases |
|
| (662,046 | ) |
|
| (706,238 | ) |
|
| (429,762 | ) |
Proceeds from sales |
|
| 0 |
|
|
| 3,957 |
|
|
| 411,796 |
|
Proceeds from maturities and principal repayments |
|
| 657,653 |
|
|
| 730,272 |
|
|
| 27,093 |
|
Securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from maturities and principal repayments |
|
| 3,024 |
|
|
| 5,646 |
|
|
| 9,331 |
|
Cash paid in connection with acquisitions |
|
| 0 |
|
|
| 0 |
|
|
| (6,423 | ) |
Cash received from acquired banks |
|
| 0 |
|
|
| 0 |
|
|
| 24,927 |
|
Net originations of loans |
|
| (159,357 | ) |
|
| (46,940 | ) |
|
| (146,531 | ) |
Purchases of premises and equipment |
|
| (5,902 | ) |
|
| (5,090 | ) |
|
| (2,833 | ) |
Proceeds from sale of premises, equipment, other real estate owned and other assets |
|
| 860 |
|
|
| 653 |
|
|
| 3,668 |
|
Net cash used in investing activities |
|
| (165,768 | ) |
|
| (17,740 | ) |
|
| (108,734 | ) |
GUARANTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years ended December 31, 2020, 2019 and 2018
(Dollars in thousands)
Preferred Stock | Common Stock | Additional Paid-in Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Less: KSOP- Owned Shares | Total Shareholders’ Equity | ||||||||||||||||||||||||
| Balance at January 1, 2015 | $ | — | $ | 8,097 | $ | 67,865 | $ | 44,069 | $ | (1,918 | ) | $ | (5,824 | ) | $ | (36,300 | ) | $ | 75,989 | ||||||||||||
| Net earnings | — | — | — | 10,111 | — | — | — | 10,111 | |||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | (749 | ) | — | (749 | ) | |||||||||||||||||||||
| Purchase of treasury stock | — | — | — | — | (14,568 | ) | — | — | (14,568 | ) | |||||||||||||||||||||
| Issuance of common stock | — | 1,519 | 33,423 | — | — | — | (597 | ) | 34,345 | ||||||||||||||||||||||
| Stock based compensation | — | — | 237 | — | — | — | — | 237 | |||||||||||||||||||||||
| Net change in fair value of KSOP shares | — | — | — | — | — | — | 1,513 | 1,513 | |||||||||||||||||||||||
| Dividends: | |||||||||||||||||||||||||||||||
| Common - $0.50 per share | — | — | — | (4,526 | ) | — | — | — | (4,526 | ) | |||||||||||||||||||||
| Balance at December 31, 2015 | — | 9,616 | 101,525 | 49,654 | (16,486 | ) | (6,573 | ) | (35,384 | ) | 102,352 | ||||||||||||||||||||
| Net earnings | — | — | — | 12,121 | — | — | — | 12,121 | |||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | 86 | — | 86 | |||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | 36 | — | — | 36 | |||||||||||||||||||||||
| Purchase of treasury stock | — | — | — | — | (12,218 | ) | — | (3,000 | ) | (15,218 | ) | ||||||||||||||||||||
| Sale of treasury stock | — | — | — | — | 8,557 | — | 8,261 | 16,818 | |||||||||||||||||||||||
| Stock based compensation | — | — | 211 | — | — | — | — | 211 | |||||||||||||||||||||||
| Net change in fair value of KSOP shares | — | — | — | — | — | — | (1,538 | ) | (1,538 | ) | |||||||||||||||||||||
| Dividends: | |||||||||||||||||||||||||||||||
| Common - $0.52 per share | — | — | — | (4,615 | ) | — | — | — | (4,615 | ) | |||||||||||||||||||||
| Balance at December 31, 2016 | — | 9,616 | 101,736 | 57,160 | (20,111 | ) | (6,487 | ) | (31,661 | ) | 110,253 | ||||||||||||||||||||
| Net earnings | — | — | — | 14,439 | — | — | — | 14,439 | |||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | 360 | — | 360 | |||||||||||||||||||||||
| Terminated KSOP put option | — | — | — | — | — | — | 34,300 | 34,300 | |||||||||||||||||||||||
| Exercise of stock options | — | 5 | 55 | — | 24 | — | — | 84 | |||||||||||||||||||||||
| Sale of common stock | — | 2,300 | 53,455 | — | — | — | — | 55,755 | |||||||||||||||||||||||
| Stock based compensation | — | — | 355 | — | — | — | — | 355 | |||||||||||||||||||||||
| Net change in fair value of KSOP shares | — | — | — | — | — | — | (2,639 | ) | (2,639 | ) | |||||||||||||||||||||
| Dividends: | |||||||||||||||||||||||||||||||
| Common - $0.53 per share | — | — | — | (5,562 | ) | — | — | — | (5,562 | ) | |||||||||||||||||||||
| Balance at December 31, 2017 | $ | — | $ | 11,921 | $ | 155,601 | $ | 66,037 | $ | (20,087 | ) | $ | (6,127 | ) | $ | — | $ | 207,345 | |||||||||||||
|
|
|
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net change in deposits |
|
| 329,586 |
|
|
| 85,324 |
|
|
| 13,739 |
|
Net change in securities sold under agreements to repurchase |
|
| 4,531 |
|
|
| (1,128 | ) |
|
| (651 | ) |
Proceeds from FHLB advances |
|
| 390,000 |
|
|
| 260,500 |
|
|
| 391,000 |
|
Repayment of FHLB advances |
|
| (336,017 | ) |
|
| (320,518 | ) |
|
| (331,517 | ) |
Proceeds from line of credit |
|
| 30,000 |
|
|
| 0 |
|
|
| 0 |
|
Repayment of line of credit |
|
| (18,000 | ) |
|
| 0 |
|
|
| 0 |
|
Proceeds from issuance of debentures |
|
| 10,000 |
|
|
| 0 |
|
|
| 0 |
|
Repayments of debentures |
|
| (1,000 | ) |
|
| (2,000 | ) |
|
| (1,000 | ) |
Purchase of treasury stock |
|
| (16,927 | ) |
|
| (10,140 | ) |
|
| (4,265 | ) |
Exercise of stock options |
|
| 638 |
|
|
| 925 |
|
|
| 327 |
|
Cash dividends |
|
| (8,487 | ) |
|
| (8,065 | ) |
|
| (7,031 | ) |
Net cash provided by financing activities |
|
| 384,324 |
|
|
| 4,898 |
|
|
| 60,602 |
|
Net change in cash and cash equivalents |
|
| 261,077 |
|
|
| 19,204 |
|
|
| (19,918 | ) |
Cash and cash equivalents at beginning of period |
|
| 90,714 |
|
|
| 71,510 |
|
|
| 91,428 |
|
Cash and cash equivalents at end of period |
| $ | 351,791 |
|
| $ | 90,714 |
|
| $ | 71,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
| $ | 13,898 |
|
| $ | 23,700 |
|
| $ | 18,813 |
|
Income taxes paid |
|
| 8,245 |
|
|
| 5,536 |
|
|
| 5,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of noncash investing and financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends accrued |
|
| 2,188 |
|
|
| 2,076 |
|
|
| 2,013 |
|
Transfer of loans to other real estate owned and repossessed assets |
|
| 666 |
|
|
| 340 |
|
|
| 1,304 |
|
Common stock issued in acquisitions |
|
| 0 |
|
|
| 0 |
|
|
| 29,568 |
|
See accompanying notes to consolidated financial statements
F-8
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF CASH FLOWS
(Dollars in thousands)
| 2017 | 2016 | 2015 | |||||||||
| Cash flows from operating activities | |||||||||||
| Net earnings | $ | 14,439 | $ | 12,121 | $ | 10,111 | |||||
| Adjustments to reconcile net earnings to net cash provided from operating activities: | |||||||||||
| Depreciation | 3,162 | 3,183 | 2,958 | ||||||||
| Amortization | 1,033 | 980 | 951 | ||||||||
| Deferred taxes | 2,428 | (1,330 | ) | 9 | |||||||
| Premium amortization, net of discount accretion | 4,576 | 4,974 | 4,196 | ||||||||
| Net realized gain on securities transactions | (167 | ) | (82 | ) | (77 | ) | |||||
| Gain on loans held for sale | (1,981 | ) | (1,718 | ) | (1,053 | ) | |||||
| Provision for loan losses | 2,850 | 3,640 | 2,175 | ||||||||
| Origination of loans held for sale | (64,817 | ) | (62,620 | ) | (59,217 | ) | |||||
| Proceeds from loans held for sale | 67,465 | 65,642 | 60,318 | ||||||||
| Write-down of other real estate and repossessed assets | 12 | 122 | 172 | ||||||||
| Net (gain) loss on sale of premises, equipment, other real estate owned and other assets | (906 | ) | 108 | 132 | |||||||
| Stock based compensation | 355 | 211 | 237 | ||||||||
| Net change in accrued interest receivable and other assets | (15 | ) | (3,786 | ) | (3,781 | ) | |||||
| Net change in accrued interest payable and other liabilities | 1,235 | 964 | (8,917 | ) | |||||||
| Net cash provided by operating activities | 29,669 | 22,409 | 8,214 | ||||||||
| Cash flows from investing activities | |||||||||||
| Securities available for sale: | |||||||||||
| Purchases | (517,155 | ) | (250,485 | ) | (414,191 | ) | |||||
| Proceeds from sales | 213,813 | 103,942 | 140,668 | ||||||||
| Proceeds from maturities and principal repayments | 225,516 | 259,719 | 246,113 | ||||||||
| Securities held to maturity: | |||||||||||
| Purchases | — | (86,642 | ) | (9,088 | ) | ||||||
| Proceeds from sales | 3,298 | 1,866 | — | ||||||||
| Proceeds from maturities and principal repayments | 9,516 | 18,336 | 13,835 | ||||||||
| Acquisition of Denton branch, net of cash paid | — | 2,399 | — | ||||||||
| Acquisition of DCB Financial Corporation, net of cash paid | — | — | (2,308 | ) | |||||||
| Acquisition of Texas Leadership Bank, net of cash paid | — | — | 354 | ||||||||
| Net purchases of premises and equipment | (2,320 | ) | (1,599 | ) | (4,013 | ) | |||||
| Net proceeds from sale of premises, equipment, other real estate owned and other assets | 2,279 | 2,609 | 1,290 | ||||||||
| Net increase in loans | (118,754 | ) | (184,126 | ) | (120,155 | ) | |||||
| Net cash used in investing activities | (183,807 | ) | (133,981 | ) | (147,495 | ) | |||||
| 2017 | 2016 | 2015 | |||||||||
| Cash flows from financing activities | |||||||||||
| Net change in deposits | 99,529 | 105,966 | 229,458 | ||||||||
| Net change in securities sold under agreements to repurchase | 2,020 | (2,104 | ) | 3,565 | |||||||
| Proceeds from FHLB advances | 60,000 | 120,178 | — | ||||||||
| Repayment of FHLB advances | (70,017 | ) | (86,350 | ) | (90,197 | ) | |||||
| Proceeds from other debt | 2,000 | 19,000 | 18,000 | ||||||||
| Repayment of other debt | (20,286 | ) | (18,714 | ) | (11,000 | ) | |||||
| Issuance of debentures | — | — | 9,000 | ||||||||
| Repayments of debentures | (5,500 | ) | (2,000 | ) | (2,000 | ) | |||||
| Purchase of treasury stock | — | (12,218 | ) | (14,568 | ) | ||||||
| Sale of treasury stock | — | 8,557 | — | ||||||||
| Exercise of stock options | 84 | 36 | — | ||||||||
| Sale of common stock | 55,755 | — | 7,266 | ||||||||
| Cash dividends | (5,562 | ) | (4,615 | ) | (4,526 | ) | |||||
| Net cash provided by financing activities | 118,023 | 127,736 | 144,998 | ||||||||
| Net change in cash and cash equivalents | (36,115 | ) | 16,164 | 5,717 | |||||||
| Cash and cash equivalents at beginning of year | 127,543 | 111,379 | 105,662 | ||||||||
| Cash and cash equivalents at end of year | $ | 91,428 | $ | 127,543 | $ | 111,379 | |||||
| Supplemental disclosures of cash flow information | |||||||||||
| Interest paid | $ | 12,119 | $ | 10,966 | $ | 7,929 | |||||
| Income taxes paid | 6,660 | 5,810 | 3,350 | ||||||||
| Supplemental schedule of noncash investing and financing activities | |||||||||||
| Transfer loans to other real estate owned and repossessed assets | $ | 1,775 | $ | 6,241 | $ | 808 | |||||
| Common stock issued in acquisitions | — | — | 27,676 | ||||||||
| Transfer of KSOP shares | — | (8,261 | ) | — | |||||||
| Terminated KSOP put option | (34,300 | ) | — | — | |||||||
| Net change in fair value of KSOP shares | 2,639 | 1,538 | (1,513 | ) | |||||||
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed in the preparation of the consolidated financial statements. The policies conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry.
Principles of Consolidation
: The consolidated financial statements include the accounts of Guaranty Bancshares, Inc. and its wholly-owned subsidiary Guaranty Bank & Trust, N.A., (the “Bank” or "Guaranty Bank & Trust"). All entities combined are collectively referred to as the “Company”. All significant intercompany balances and transactions have been eliminated in consolidation.Non-Bank Investments
: Guaranty Bank & Trust hasNature of Operations
: The Company operates several banking locations in Texas. The Company’s main sources of income are derived from granting loans, primarily in East Texas, Central Texas,Use of Estimates
: To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided. Actual future results could differ.Cash and Cash Equivalents
: Cash and cash equivalents include cash, due from banks, interest-bearing deposits with other banks that have initial maturities less than 90 days and federal funds sold. Net cash flows are reported for loan and deposit transactions, and short-term borrowings with initial maturities less than 90 days.Marketable Securities
: Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income. Management determines the appropriate classification of securities at the time of purchase. Interest income includes amortization and accretion of purchase premiums and discounts. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.Management evaluates securities that are in an unrealized loss position for other-than-temporary impairment (“OTTI”)credit-related factors, in order to determine if an allowance for credit losses is required. This evaluation is performed on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects
F-9
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, any previous allowance for credit loss is written off and the entire difference between amortized cost andbasis of the securities is written down to fair value, is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, management will determine if the amount of impairment is split into two components as follows: 1) OTTI related todecline in fair value has resulted from a credit loss which must be recognizedor other factors and apply the following: 1) recognize an allowance for credit loss by a charge to earnings for the credit-related component of the decline in fair value (subject to a floor of the income statementexcess of the amortized cost over fair value) and 2) OTTI related to other factors, which is recognizedrecognize the noncredit-related component of the fair value decline, if any, in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.
Non-marketable Securities
: Other securities, such as stock in the Independent Bankers Financial Corporation, the Federal Reserve Bank, and the Federal Home Loan Bank are accounted for on the cost basis and are carried in other assets. Stock in Valesco Commerce Street Capital, L.P., Valesco Fund II, L.P., Independent Bankers Capital Fund II, L.P.Loans Held for Sale
: Certain residential mortgage loans are originated for sale in the secondary mortgage loan market. These loans are carried at the lower of cost or estimated fair market value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. To mitigate the interest rate risk, fixed commitments may be obtained at the time loans are originated or identified for sale. All sales are made without recourse. Gains or losses on sales of mortgage loans are recognized at settlement dates based on the difference between the selling price and the carrying value of the related mortgage loans sold.Loans
: Loans that management has the intent and ability to hold for the foreseeable future, or until maturity or payoff, are reported at their outstanding principal balances adjusted for any charge-offs, the allowance forNonaccrual Loans
: Loans are placed on nonaccrual status at ninety days past due or as determined by management, and interest is considered a loss. The accrual of interest on loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.Certain Acquired Loans
: Under the Financial Accounting Standards Board’s Accounting Standards Codification (ASC) 326, “Financial Instruments – Credit Losses”, loans purchased as part of a business combination that have evidence of credit deterioration since their origination date are to be recorded at amortized cost with an associated allowance for the expected credit loss at the date of the purchase. DuringF-10
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
These acquired performing loans are accounted for under Financial Accounting Standards Board’s Accounting Standards Codification (ASC)ASC 310-20,
Allowance for LoanCredit Losses:
Available for Sale Debt Securities
For available for sale debt securities in an unrealized loss position, the Company first assesses whether or not it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the securities amortized cost basis is written down to fair value through income. For available for sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of the cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected are less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.
Changes in the allowance for credit losses are recorded as provisions for or reversal of credit loss expense. Losses
Loans
The allowance for credit losses (referred to as the “ACL” for the year ended December 31, 2020 and synonymous with the allowance for loan losses for prior periods) is a valuation allowance for probable incurred credit losses. Loan lossesaccount that is deducted from the loans' amortized cost basis to present the net amount expected to be collected over the lifetime of the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Recoveries do not exceed the amount expected to be charged-off, including any amounts previously charged-off. Subsequent recoveries, if any, are credited to the allowance.
Management estimates the allowance balance required using relevant available information, from internal and external sources, relating to past loanevents, current conditions, and reasonable and supportable economic forecasts. We use the weighted-average remaining maturity method (“WARM” method) as the basis for the estimation of expected credit losses. The WARM method uses a historical average annual charge-off rate. This average annual charge-off rate contains loss experience,content over a historical lookback period and is used as a foundation for estimating the nature and volumecredit loss reserve for the remaining outstanding balances of loans in a segment at the balance sheet date. The average annual charge-off rate is applied to the contractual term, further adjusted for estimated prepayments, to determine the unadjusted historical charge-off rate. The calculation of the portfolio, information about specific borrower situations and estimated collateral values, economicunadjusted historical charge-off rate is then adjusted for current conditions and other factors. Allocations of the allowance may befor reasonable and supportable economic forecast periods. Adjustments to historical loss information are made for specific loans, butdifferences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix,
F-11
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
delinquency level, or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors. These qualitative factors serve to compensate for additional areas of uncertainty inherent in the entire allowance is available for any loanportfolio that are not reflected in management’s judgment, should be charged off.
The allowance for credit losses is measured on a collective (pool or segment) basis when similar risk characteristics exist. Our loan losses consists of specificportfolio segments include both regulatory call report codes and general components. The specific component relates toby internally identified risk ratings for our commercial loan segments and by delinquency status for our consumer loan segments. We also have separately identified our mortgage warehouse loans, that are individually classified as impaired when, basedinternally originated SBA loans, SBA loans acquired from Westbound Bank in 2018 and loans originated under the Paycheck Protection Program (“PPP”) for inherent risk analysis. Accrued interest receivable on current information and events, itloans is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.
Below is a summary of the segments and certain of the inherent risks in the Company’s loan portfolio:
Commercial and industrial: | This portfolio segment includes general secured and unsecured commercial loans which are not secured by real | |
Construction and development: | This portfolio segment includes all loans for the purpose of construction, including both business and residential structures; and real estate development loans, including | |
Commercial real estate: | The commercial real estate portfolio segment includes all commercial loans that are secured by real estate, other than those included in the construction and development, farmland, multi-family, and 1-4 family residential segments. Risks inherent in this portfolio segment include fluctuations in property values and changes in the local and national economy impacting the sale of the finished structures. | |
Farmland: | The farmland portfolio includes loans that are secured by real estate that is used or usable for agricultural purposes, including land used for crops, livestock production, grazing & | |
Consumer: | This portfolio segment consists of non-real estate loans to consumers. This includes secured and unsecured loans such as auto and personal loans. The risks inherent in this portfolio segment include those factors that would impact the consumer’s ability to meet their obligations under the loan. These include increases in the local unemployment rate and fluctuations in consumer and business sales. | |
1-4 family residential: | This portfolio segment includes loans to both commercial and consumer borrowers secured by real estate for housing units of up to four families. Risks inherent in this portfolio segment include increases in the local unemployment rate, changes in the local economy and factors that would impact the value of the underlying collateral, such as changes in property values. | |
F-12
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Multi-family residential: | This portfolio segment includes loans secured by structures containing five or more residential housing units. Risks inherent in this portfolio segment include increases to the local unemployment rate, changes in the local economy, and factors that would impact property values. | |
Agricultural: | The agricultural portfolio segment includes loans to individuals and companies in the dairy and cattle industries and farmers. Loans in the segment are secured by collateral including cattle, crops and equipment. Risks inherent in this portfolio segment include adverse changes in climate and fluctuations in feed and cattle prices. | |
The following groups of loans are considered to carry specific similar inherent risk characteristics, which the Bank considers separately during its calculation of the allowance for credit losses. These groups of loans are reported within the segments identified in the previous table.
Mortgage Warehouse: | The mortgage warehouse portfolio includes loans in which we purchase mortgage loan ownership interests from unaffiliated mortgage originators that are generally held by us for a period of less than 30-days, typically 5-10 days before they are sold to an approved investor. These loans are consistently underwritten based on standards established by the approved investor. Risks inherent in this portfolio include borrower or mortgage originator fraud. | |
SBA – Acquired Loans | The SBA – acquired loans segment consists of partially SBA guaranteed loans that were acquired from Westbound Bank in June 2018. These loans are commercial real estate and commercial and industrial in nature and were underwritten with guidelines that are less conservative than our Company. Risks inherent in this portfolio include increases in interest rates, as most are variable rate loans, generally lower levels of borrower equity, less conservative underwriting guidelines, fluctuations in real estate values and changes in the local and national economy. | |
SBA – Originated Loans | The SBA – originated loans segment consists of loans that are partially guaranteed by the SBA and were originated and underwritten by Bank loan officers. Risks inherent in this portfolio include increases in interest rates due to variable rate structures, generally lower levels of borrower equity or net worth, fluctuations in real estate values and changes in the local and national economy. | |
SBA – Paycheck Protection Program Loans | Loans originated under the PPP are 100% government guaranteed by the SBA. As a result, the loans are excluded from the segments above and a minimal reserve estimate was applied to this segment of loans for purposes of calculating the credit loss provision. |
In general, the loans in our portfolio have low historical credit losses. The credit quality of loans in our portfolio is impacted by delinquency status and debt service coverage generated by our borrowers’ businesses and fluctuations in the value of real estate collateral. Management considers delinquency status to be the most meaningful indicator of the credit quality of one-to-four single family residential, home equity loans and lines of credit and other consumer loans. In general, these types of loans do not begin to show signs of credit deterioration or default until they have been outstanding for some period of time, a process we refer to as “seasoning.” As a result, a portfolio of older loans will usually behave more predictably than a portfolio of newer loans. We consider the majority of our consumer type loans to be “seasoned” and that the credit quality and current level of delinquencies and defaults represents the level of reserve needed in the
F-13
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
allowance for credit losses. If delinquencies and defaults were to increase, we may be required to increase our provision for credit losses, which would adversely affect our results of operations and financial condition. Delinquency statistics are updated at least monthly.
Internal risk ratings are considered the most meaningful indicator of credit quality for new commercial and industrial, construction, and commercial real estate loans. Internal risk ratings are a key factor that impact management’s estimates of loss factors used in determining the amount of the allowance for credit losses. Internal risk ratings are updated on a continuous basis.
Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are excluded from the collective evaluation. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.
Credit Quality Indicators - The Company monitors the credit quality of the loans in the various segments by identifying and evaluating credit quality indicators specific to each segment class. This information is incorporated into management’s analysis of the adequacy of the allowance for loancredit losses. Information for the credit quality indicators is updated monthly or quarterly for classified assets and at least annually for the remainder of the portfolio.
The following is a discussion of the primary credit quality indicators most closely monitored for the respectiveloan portfolio, segment classes:
Commercial and industrial: | In assessing risk associated with commercial loans, management considers the business’s cash flow and the value of the underlying collateral to be the primary credit quality indicators. | |
Construction and development: | In assessing the credit quality of construction loans, management considers the ability of the borrower to | |
Commercial real estate: | Management considers the strength of the borrower’s cash flows, changes in property values and occupancy status to be key credit quality indicators of commercial real estate loans. | |
Farmland: | ||
In assessing risk associated with farmland loans, management considers the borrower’s cash flows and underlying property values to be key credit quality indicators. | ||
Consumer: | Management considers delinquency status to be the primary credit quality indictor of consumer loans. Others include the debt to income ratio of the borrower, the borrower’s credit history, the availability of other credit to the borrower, the borrower’s past-due history, and, if applicable, the value of the underlying collateral to be primary credit quality indicators. | |
1-4 family residential: | Management considers delinquency status to be the primary credit quality indictor of 1-4 family residential loans. Others include changes in the local economy, changes in property values, and changes in local unemployment rates to be key credit quality indicators of the loans in the 1-4 family residential loan segment. | |
F-14
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Multi-family residential: | Management considers changes in the local economy, changes in property values, vacancy rates and changes in local unemployment rates to be key credit quality indicators of the loans in the multifamily loan segment. | |
Agricultural: | In assessing risk associated with agricultural loans, management considers the borrower’s cash flows, the value of the underlying collateral and sources of secondary repayment to be primary credit quality indicators. | |
From time to time, we modify our loan agreement with a borrower. A modified loan is considered a troubled debt restructuring when two conditions are met: (i) the borrower is experiencing financial difficulty and (ii) concessions are made by us that would not otherwise be considered for a borrower with similar credit risk characteristics. Modifications to loan terms may include a lower interest rate, a reduction of principal, or a longer term to maturity. We review each troubled debt restructured loan and determine on a case by case basis if the loan can be grouped with its like segment for allowance consideration or whether it should be individually evaluated for a specific allowance for credit loss allocation. If individually evaluated, an allowance for credit loss allocation is based on either the present value of estimated future cash flows or the estimated fair value of the underlying collateral.
In response to the COVID-19 pandemic, the Bank provided financial relief to many of its customers through a 3-month principal and interest payment deferral program or an up to 6-month interest only program. Pursuant to the Coronavirus Aid, Relief, and Economic Security Act (“CARES”) Act and the April 7, 2020 Interagency guidance, these loan modifications, and certain subsequent modifications, are not considered to be troubled debt restructurings.
Reserve for Unfunded Commitments
The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancelable by the Company. The allowance for credit losses on off balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life
Premises and Equipment
: Land is carried at cost. Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is provided on the straight-line method over the estimated useful lives of the related assets. Maintenance, repairs and minor improvements are charged to noninterest expense as incurred. The following table provides a summary of the estimated useful life of the different fixed asset classes as stated in the policy:Bank Buildings | Up to 40 years | |
Equipment | to 10 years | |
Furniture and Fixtures | to 7 years | |
Software | to 5 years | |
Automobiles | to 4 years |
Other Real Estate Owned
: Assets acquired through, or in lieu of, foreclosure are initially recorded at fair value, less estimated carrying and selling costs, when acquired, establishing a new cost basis. If fair value declines, a valuation allowance is recorded through expense. Costs after acquisition are expensed.Transfers of Financial Assets
: Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of thatF-15
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Goodwill and Other Intangible Assets
: Goodwill resulting from business combinations is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exists that indicate that a goodwill impairment test should be performed. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on our balance sheet.Impairment is tested for annually and exists when a reporting unit’s carrying value of goodwill exceeds its fair value. At the measurement date, the Company had positive equity and the Company elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the reporting unit exceeded its carrying
Core deposit intangibles represent premiums paid on acquired deposits based on the estimated fair value of the deposits at the time of purchase. These premiums are amortized over a ten year period.
Bank Owned Life Insurance
: The Company has purchased life insurance policies on certain key executives. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.Income Taxes
: Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.
The Company recognizes interest and/or penalties related to income tax matters in income tax expense.
Fair Values of Financial Instruments
: Fair values of financial instruments are estimated using relevant market information and other assumptions. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates. The fair value estimates of existing on and off-balance sheet financial instruments do not include the value of anticipated future business or the value of assets and liabilities not considered financial instruments.Loss Contingencies
: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.F-16
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Derivative Financial Instruments
: The Company accounts for its derivatives under ASC 815, “Derivatives and Hedging,” which requires recognition of all derivatives as either assets or liabilities in the balance sheet and requires measurement of those instruments at fair value through adjustments to accumulated other comprehensive income and/or current earnings, as appropriate. On the date the Company enters into a derivative contract, the Company designates the derivative instrument as either a fair value hedge, cash flow hedge or as a free-standing derivative instrument. For a fair value hedge, changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability or of an unrecognized firm commitment attributable to the hedged risk are recorded in current period operations. For a cash flow hedge, changes in the fair value of the derivative instrument, to the extent that it is effective, are recorded in accumulated other comprehensive income and subsequently reclassified to operations in the same period(s) that the hedged transaction impacts operations. For free-standing derivative instruments, changes in fair value are reported in current period operations.Prior to entering a hedge transaction, the Company formally documents the relationship between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivative instruments that are designated as fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific forecasted transactions along with a formal assessment at both inception of the hedge and on an ongoing basis as to the effectiveness of the derivative instrument in offsetting changes in fair values or cash flows of the hedged item. If it is determined that the derivative instrument is not highly effective as a hedge, hedge accounting is discontinued and the adjustment to fair value of the derivative instrument is recorded in operations.
Dividend Restriction
: Banking regulations require the maintenance of certain capital levels that may limit the amount of dividends that may be paid. Regulatory capital requirements are more fully disclosed in Note 18.Restrictions on Cash
: The Company was not required to have cash on hand or on deposit with the Federal Reserve Bank to meet regulatory reserve and clearing requirements as of December 31,Stock Compensation
: In accordance with ASC 718, “Stock Compensation,” the Company uses the fair value method of accounting for share based compensation prescribed by the standard. The fair value of options granted is determined using the Black-Scholes option valuation model.Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.
Earnings Per Share
: Basic earnings per share is net income divided by the weighted average number of common shares outstanding during the period.Comprehensive Income (Loss)
Operating Segments
: While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis.F-17
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Operating segments are aggregated into one1 as operating results for all segments are similar. Accordingly, all of the financial service operations are considered by management to be aggregated in one1 reportable operating segment.
Reclassification
: Certain amounts in prior period financial statements have been reclassified to conform to current period presentation. These reclassifications are immaterial and have no effect on net income, total assets orRecent Accounting Pronouncements:
In February 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2018-02,
Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 was issued to address the income tax accounting treatment of the stranded tax effects within other comprehensive income due to the prohibition of backward tracing due to an income tax rate change that was initially recorded in other comprehensive income. This issue came about from the enactment of the Tax Cuts and Jobs Act on December 22, 2017 that changed the Company’s income tax rate from 35% to 21%. The ASU changed current accounting whereby an entity may elect to reclassify the stranded tax effect from accumulated other comprehensive income to retained earnings. The ASUIn January 2017, the FASB issued ASU 2017-04,
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies the accounting for goodwill impairment for all entities by requiring impairment changes to be based on the first step in today’s two-step impairment test, thus eliminating step two from the goodwill impairment test. In addition, the amendment eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform step two of the goodwill impairment test. ForIn June 2016, the FASB issued ASU 2016-13,
Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which sets forth a "current expected credit loss" ("CECL") model requiring the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. This replaces theF-18
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
January 1, 2020 for the cumulative effect of adopting ASC 326. The adoption of this ASU and has developed2016-13 did not have a project plan regarding implementation.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842). The FASB issued this ASU to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet by lessees for those leases classified as operating leases under current U.S. GAAP and disclosing key information about leasing arrangements. The amendments in this ASU are effective for public companies for annual periods, and interim periods within those annual periods, beginning after December 15, 2018.In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606), followed by various amendmentsThe majority of the Company's income consistsrevenue-generating transactions are not subject to Topic 606, including revenue generated from financial instruments, such as loans, letters of net interest income on financial assetscredit, loan processing fees and financial liabilities, which is explicitly excluded frominvestment securities, as well as revenue related to mortgage banking activities, and BOLI, as these activities are subject to other accounting guidance. Descriptions of revenue-generating activities that are within the scope of Topic 606, and are presented in the amendments. The Company continues to evaluate the impactaccompanying Consolidated Statements of the amendments on theEarnings as components of noninterest income, that have recurring revenue streams; however, the Company does not expect any recognition changes to have a significant impact to its consolidated financial statements.
• | Deposit services. Service charges on deposit accounts include fees for banking services provided, overdrafts and non-sufficient funds. Revenue is generally recognized as incurred in accordance with published deposit account agreements for retail accounts or contractual agreements for commercial accounts. |
• | Merchant and debit card fees. Merchant and debit card fees includes interchange income that is generated by our customers’ usage and volume of activity. Interchange rates are not controlled by the Company, which effectively acts as processor that collects and remits payments associated with customer debit card transactions. Merchant service revenue is derived from third party vendors that process credit card transactions on behalf of our merchant customers. Merchant services revenue is recognized as incurred and is primarily comprised of residual fee income based on the referred merchant’s processing volumes and/or margin. |
F-19
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
• | Fiduciary income. Trust income includes fees and commissions from investment management, administrative and advisory services primarily for individuals, and to a lesser extent, partnerships and corporations. Investment management income is recognized on an accrual basis at the time the services are performed and when we have a right to invoice and are based on either the market value of the assets managed or the services provided. Administrative and advisory services income is recognized as incurred. |
• | Other noninterest income. Other noninterest income includes among other things, mortgage loan origination fees, wire transfer fees, stop payment fees, loan administration fees and mortgage warehouse lending fees. The majority of these fees in other noninterest income are not subject to the requirements of ASC 606. Fees that are within the scope of ASC 606 are generally received and recognized as revenue at the time the performance obligations are met. |
NOTE 2 - ACQUISITIONS
On close of business March 27, 2015,June 1, 2018, the Company acquired 100% of the outstanding common shares of DCB, the holding company for Preston Statecapital stock of Westbound Bank, a Texas banking association (“Westbound”), in exchange for a combination of cash and shares of the Company’s common stock amounting to total consideration of $29,681.$35,991. Under the terms of the acquisition, 68 common shareholders received 923,133the Company issued 899,816 shares of the Company’s common stock in exchange for 1,378,3452,311,952 shares of DCB.Westbound, representing 100% of the outstanding shares of common and preferred stock of Westbound. With the acquisition, the Company has expanded its market tointo the Dallas/Fort Worth metroplex.Houston MSA. Results of operations of the acquired company were included in the Company’s results beginning March 28, 2015.June 2, 2018. Acquisition-related costs of $403$1,175 are included in other operating expenses in the Company’s consolidated statement of earnings for the year ended December 31, 2015.2018. The fair value of the common shares issued as part of the consideration paid for DCBWestbound was determined based upon the closing price of the Company’s common shares on the acquisition date.
Goodwill of $8,670 for DCB, $3,815 for TLB, and $140 for the Denton Branch$13,418 arising from the acquisitionsacquisition of Westbound consisted largely of synergies and the cost savings resulting from the combining of the operations of the companies. GoodwillNaN of $141the goodwill is expected to be deductible for income taxestax purposes. The following table summarizes the consideration paid for DCB and TLBWestbound and the fair value of the assets acquired and liabilities assumed recognized at the acquisition date:
Consideration:
|
| Westbound |
| |
Cash |
| $ | 6,423 |
|
Equity instruments |
|
| 29,568 |
|
Fair value of total consideration transferred |
| $ | 35,991 |
|
Cash consideration includes contingent consideration related to an escrow agreement in which $1,750 was retained from amounts paid to Westbound shareholders for payment to Guaranty in the event that certain defined loan relationships experienced actual losses during the three year period following the close of the transaction on June 1, 2018. If the loans defined in the escrow agreement do experience losses, funds from the escrow account will be remitted to Guaranty. If the loans payoff or do not experience losses, funds from the escrow account will be remitted to Westbound shareholders according to terms set forth in the escrow agreement.
F-20
| DCB | TLB | ||||||
| Cash | $ | 8,449 | $ | 7,771 | |||
| Equity instruments | 21,232 | 6,444 | |||||
| Contingent consideration | — | — | |||||
| Fair value of total consideration transferred | $ | 29,681 | $ | 14,215 | |||
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisitions, March 27, 2015 and April 10, 2015, respectively.acquisition, June 1, 2018.
|
| Westbound |
| |
Cash and due from banks |
| $ | 24,927 |
|
Investment securities available for sale |
|
| 15,264 |
|
Loans, net of discount |
|
| 154,687 |
|
Accrued interest receivable |
|
| 651 |
|
Premises and equipment |
|
| 8,625 |
|
Core deposit intangible |
|
| 2,700 |
|
Other assets |
|
| 9,205 |
|
Total assets acquired |
|
| 216,059 |
|
|
|
|
|
|
Non-interest bearing deposits |
|
| 40,595 |
|
Interest bearing deposits |
|
| 140,826 |
|
Federal Home Loan Bank advances |
|
| 10,500 |
|
Accrued interest and other liabilities |
|
| 1,565 |
|
Total liabilities assumed |
|
| 193,486 |
|
|
|
|
|
|
Net assets acquired |
|
| 22,573 |
|
|
|
|
|
|
Total consideration paid |
|
| 35,991 |
|
|
|
|
|
|
Goodwill |
| $ | 13,418 |
|
| DCB | TLB | ||||||
| Cash | $ | 5,794 | $ | 8,124 | |||
| Investment securities available for sale | 2,862 | 19,794 | |||||
| Loans, net of discount of $1,389 and $468, respectively | 118,154 | 43,568 | |||||
| Accrued interest receivable | 299 | 173 | |||||
| Premises and equipment | 199 | 2,664 | |||||
| Nonmarketable equity securities | 168 | — | |||||
| Core deposit intangible | 968 | 534 | |||||
| Other assets | 1,726 | 1,558 | |||||
| Total assets acquired | 130,170 | 76,415 | |||||
| Noninterest-bearing deposits | 25,607 | 16,702 | |||||
| Interest-bearing deposits | 68,844 | 48,794 | |||||
| Subordinated debentures | 5,155 | — | |||||
| Other liabilities | 9,553 | 519 | |||||
| Total liabilities assumed | 109,159 | 66,015 | |||||
| Net assets acquired (liabilities assumed) | 21,011 | 10,400 | |||||
| Total consideration paid | 29,681 | 14,215 | |||||
| Goodwill | $ | 8,670 | $ | 3,815 | |||
The fair value of net assets acquired includes fair value adjustments to certain receivables that were not considered impaired as of the acquisition date (“acquired performing loans”). The fair value adjustments were determined using discounted contractual cash flows. However, the Company believes that all contractual cash flows related to these financial instruments will be collected. As such, these receivables were not considered impaired at the acquisition date and were not subject to the guidance relating to purchased credit impaired loans, which have shown evidence of credit deterioration since origination. Acquired performing loans had fair value and gross contractual amounts receivable of $118,154 and $119,543, respectively for DCB, $43,568 and $44,036, respectively for TLB, and $2 and $2, respectively for the Denton Branch on the date of acquisition.
F-21
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 3 - MARKETABLE SECURITIES
During the first quarter of 2020, the Company transferred all of its investment securities classified as held to maturity to available for sale in order to provide maximum flexibility to address liquidity and capital needs that may result from COVID-19. The Company believes that these transfers are allowable under existing GAAP due to the isolated, non-recurring and unusual events resulting from the pandemic.
The following table summarizestables summarize the amortized cost and fair value of securities available for sale as of December 31, 2020, and the amortized cost and fair value of securities held to maturity atand available for sale, respectively, as of December 31, 2017 and 20162019 and the corresponding amounts of gross unrealized gains and losses:
December 31, 2020 |
| Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Estimated Fair Value |
| ||||
Available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
| $ | 29,608 |
|
| $ | 1,382 |
|
| $ | 8 |
|
| $ | 30,982 |
|
Municipal securities |
|
| 164,668 |
|
|
| 11,036 |
|
|
| 0 |
|
|
| 175,704 |
|
Mortgage-backed securities |
|
| 104,210 |
|
|
| 3,041 |
|
|
| 87 |
|
|
| 107,164 |
|
Collateralized mortgage obligations |
|
| 64,611 |
|
|
| 2,335 |
|
|
| 1 |
|
|
| 66,945 |
|
Total available for sale |
| $ | 363,097 |
|
| $ | 17,794 |
|
| $ | 96 |
|
| $ | 380,795 |
|
December 31, 2019 |
| Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Estimated Fair Value |
| ||||
Available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
| $ | 19,667 |
|
| $ | 592 |
|
| $ | 0 |
|
| $ | 20,259 |
|
Municipal securities |
|
| 16,780 |
|
|
| 576 |
|
|
| 8 |
|
|
| 17,348 |
|
Mortgage-backed securities |
|
| 83,967 |
|
|
| 550 |
|
|
| 335 |
|
|
| 84,182 |
|
Collateralized mortgage obligations |
|
| 89,798 |
|
|
| 1,146 |
|
|
| 17 |
|
|
| 90,927 |
|
Total available for sale |
| $ | 210,212 |
|
| $ | 2,864 |
|
| $ | 360 |
|
| $ | 212,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal securities |
| $ | 138,416 |
|
| $ | 4,710 |
|
| $ | 3 |
|
| $ | 143,123 |
|
Mortgage-backed securities |
|
| 14,365 |
|
|
| 198 |
|
|
| 13 |
|
|
| 14,550 |
|
Collateralized mortgage obligations |
|
| 2,677 |
|
|
| 110 |
|
|
| 0 |
|
|
| 2,787 |
|
Total held to maturity |
| $ | 155,458 |
|
| $ | 5,018 |
|
| $ | 16 |
|
| $ | 160,460 |
|
| December 31, 2017 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||
| Available for sale: | |||||||||||||||
| Corporate bonds | $ | 18,823 | $ | 64 | $ | 50 | $ | 18,837 | |||||||
| Municipal securities | 7,746 | — | 200 | 7,546 | |||||||||||
| Mortgage-backed securities | 92,471 | — | 1,793 | 90,678 | |||||||||||
| Collateralized mortgage obligations | 116,809 | 5 | 1,503 | 115,311 | |||||||||||
| Total available for sale | $ | 235,849 | $ | 69 | $ | 3,546 | $ | 232,372 | |||||||
| Held to maturity: | |||||||||||||||
| Municipal securities | $ | 146,496 | $ | 2,244 | $ | 218 | $ | 148,522 | |||||||
| Mortgage-backed securities | 22,026 | 199 | 230 | 21,995 | |||||||||||
| Collateralized mortgage obligations | 6,162 | 111 | — | 6,273 | |||||||||||
| Total held to maturity | $ | 174,684 | $ | 2,554 | $ | 448 | $ | 176,790 | |||||||
| December 31, 2016 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||
| Available for sale: | |||||||||||||||
| Corporate bonds | $ | 25,254 | $ | 6 | $ | 377 | $ | 24,883 | |||||||
| Municipal securities | 7,841 | — | 622 | 7,219 | |||||||||||
| Mortgage-backed securities | 61,298 | — | 1,608 | 59,690 | |||||||||||
| Collateralized mortgage obligations | 65,789 | 10 | 666 | 65,133 | |||||||||||
| Total available for sale | $ | 160,182 | $ | 16 | $ | 3,273 | $ | 156,925 | |||||||
| Held to maturity: | |||||||||||||||
| Municipal securities | $ | 149,420 | $ | 901 | $ | 3,889 | $ | 146,432 | |||||||
| Mortgage-backed securities | 28,450 | 318 | 290 | 28,478 | |||||||||||
| Collateralized mortgage obligations | 11,501 | 265 | 521 | 11,245 | |||||||||||
| Total held to maturity | $ | 189,371 | $ | 1,484 | $ | 4,700 | $ | 186,155 | |||||||
For the year ended December 31, 2016, the Company’s mortgage-backed2020, management evaluated impairment on securities portfolio included non-agency collateralized mortgage obligationsin accordance with a market value of $1,636ASC 326, which had unrealizedis described further below. There was 0 impairment for which an allowance for credit losses of $521 and other than temporary impairment, which was recorded in 2013, of $324. These non-agency mortgage-backed securities, which were sold during 2017, were rated AAA at purchase.
For the year ended December 31, 2019, management evaluated securities for OTTIother-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market concerns warrantwarranted such evaluation. Consideration iswas given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. There were no other than temporary impairmentThe Company did 0t record any OTTI losses on debtany of its securities related to credit losses recognized duringfor the yearsyear ended December 31, 2017 and 2016.
F-22
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Information pertaining to securities with gross unrealized losses atas of December 31, 20172020, for which no allowance for credit losses has been recorded, and December 31, 20162019, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position is detailed in the following tables. Attables:
|
| Less Than 12 Months |
|
| 12 Months or Longer |
|
| Total |
| |||||||||||||||
December 31, 2020 |
| Gross Unrealized Losses |
|
| Estimated Fair Value |
|
| Gross Unrealized Losses |
|
| Estimated Fair Value |
|
| Gross Unrealized Losses |
|
| Estimated Fair Value |
| ||||||
Available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
| $ | (8 | ) |
| $ | 2,493 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | (8 | ) |
| $ | 2,493 |
|
Mortgage-backed securities |
|
| (87 | ) |
|
| 25,775 |
|
|
| 0 |
|
|
| 0 |
|
|
| (87 | ) |
|
| 25,775 |
|
Collateralized mortgage obligations |
|
| 0 |
|
|
| 0 |
|
|
| (1 | ) |
|
| 106 |
|
|
| (1 | ) |
|
| 106 |
|
Total available for sale |
| $ | (95 | ) |
| $ | 28,268 |
|
| $ | (1 | ) |
| $ | 106 |
|
| $ | (96 | ) |
| $ | 28,374 |
|
|
| Less Than 12 Months |
|
| 12 Months or Longer |
|
| Total |
| |||||||||||||||
December 31, 2019 |
| Gross Unrealized Losses |
|
| Estimated Fair Value |
|
| Gross Unrealized Losses |
|
| Estimated Fair Value |
|
| Gross Unrealized Losses |
|
| Estimated Fair Value |
| ||||||
Available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal securities |
| $ | (8 | ) |
| $ | 1,138 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | (8 | ) |
| $ | 1,138 |
|
Mortgage-backed securities |
|
| (25 | ) |
|
| 19,421 |
|
|
| (310 | ) |
|
| 42,116 |
|
|
| (335 | ) |
|
| 61,537 |
|
Collateralized mortgage obligations |
|
| 0 |
|
|
| 0 |
|
|
| (17 | ) |
|
| 2,594 |
|
|
| (17 | ) |
|
| 2,594 |
|
Total available for sale |
| $ | (33 | ) |
| $ | 20,559 |
|
| $ | (327 | ) |
| $ | 44,710 |
|
| $ | (360 | ) |
| $ | 65,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal securities |
| $ | (1 | ) |
| $ | 1,313 |
|
| $ | (2 | ) |
| $ | 759 |
|
| $ | (3 | ) |
| $ | 2,072 |
|
Mortgage-backed securities |
|
| 0 |
|
|
| 0 |
|
|
| (13 | ) |
|
| 7,032 |
|
|
| (13 | ) |
|
| 7,032 |
|
Total held to maturity |
| $ | (1 | ) |
| $ | 1,313 |
|
| $ | (15 | ) |
| $ | 7,791 |
|
| $ | (16 | ) |
| $ | 9,104 |
|
There were 7 investments in an unrealized loss position with no recorded allowance for credit losses at December 31, 2017,2020. NaN of the Company held 62 securities which had been in continuous loss positions over twelve months and 36 securities which had been in continuous loss position less than twelve months. Of the securities in a loss position over twelve months, 17 were classified as available for sale and 45 were classified as held to maturity. Of the securities in a loss position less than twelve months, 20 were classified as available for sale and 16 were classified as held to maturity. The7 securities in a loss position were composed of tax exempt municipal bonds, corporate bonds,government backed mortgage backed securities or collateralized mortgage obligations.Management evaluates available for sale debt securities in an unrealized loss position to determine whether the impairment is due to credit-related factors or noncredit-related factors. With respect to the collateralized mortgage obligations and mortgage backed securities.
F-23
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in a continuous unrealized loss position:
| Less Than 12 Months | 12 Months or Longer | Total | |||||||||||||||||||||
Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | ||||||||||||||||||
| December 31, 2017 | |||||||||||||||||||||||
| Available for sale: | |||||||||||||||||||||||
| Corporate bonds | $ | (50 | ) | $ | 8,019 | $ | — | $ | — | $ | (50 | ) | $ | 8,019 | |||||||||
| Municipal securities | — | — | (200 | ) | 7,546 | (200 | ) | 7,546 | |||||||||||||||
| Mortgage-backed securities | (658 | ) | 42,881 | (1,135 | ) | 47,797 | (1,793 | ) | 90,678 | ||||||||||||||
| Collateralized mortgage obligations | (1,091 | ) | 93,584 | (412 | ) | 21,258 | (1,503 | ) | 114,842 | ||||||||||||||
| Total available for sale | $ | (1,799 | ) | $ | 144,484 | $ | (1,747 | ) | $ | 76,601 | $ | (3,546 | ) | $ | 221,085 | ||||||||
| Held to maturity: | |||||||||||||||||||||||
| Municipal securities | $ | (37 | ) | $ | 9,230 | $ | (181 | ) | $ | 19,961 | $ | (218 | ) | $ | 29,191 | ||||||||
| Mortgage-backed securities | (57 | ) | 6,499 | (173 | ) | 9,747 | (230 | ) | 16,246 | ||||||||||||||
| Collateralized mortgage obligations | — | — | — | — | — | — | |||||||||||||||||
| Total held to maturity | $ | (94 | ) | $ | 15,729 | $ | (354 | ) | $ | 29,708 | $ | (448 | ) | $ | 45,437 | ||||||||
| Less Than 12 Months | 12 Months or Longer | Total | |||||||||||||||||||||
Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | ||||||||||||||||||
| December 31, 2016 | |||||||||||||||||||||||
| Available for sale: | |||||||||||||||||||||||
| Corporate bonds | $ | (377 | ) | $ | 22,529 | $ | — | $ | — | $ | (377 | ) | $ | 22,529 | |||||||||
| Municipal securities | (622 | ) | 7,219 | — | — | (622 | ) | 7,219 | |||||||||||||||
| Mortgage-backed securities | (1,047 | ) | 44,420 | (561 | ) | 15,270 | (1,608 | ) | 59,690 | ||||||||||||||
| Collateralized mortgage obligations | (437 | ) | 55,435 | (229 | ) | 9,049 | (666 | ) | 64,484 | ||||||||||||||
| Total available for sale | $ | (2,483 | ) | $ | 129,603 | $ | (790 | ) | $ | 24,319 | $ | (3,273 | ) | $ | 153,922 | ||||||||
| Held to maturity: | |||||||||||||||||||||||
| Municipal securities | $ | (3,889 | ) | $ | 98,943 | $ | — | $ | — | $ | (3,889 | ) | $ | 98,943 | |||||||||
| Mortgage-backed securities | (290 | ) | 19,983 | — | — | (290 | ) | 19,983 | |||||||||||||||
| Collateralized mortgage obligations | — | — | (521 | ) | 2,350 | (521 | ) | 2,350 | |||||||||||||||
| Total held to maturity | $ | (4,179 | ) | $ | 118,926 | $ | (521 | ) | $ | 2,350 | $ | (4,700 | ) | $ | 121,276 | ||||||||
Mortgage-backed securities and collateralized mortgage obligations are backed by pools of mortgages that are insured or guaranteed by the Federal Home Loan Mortgage Corporation (FHLMC)(“FHLMC”), the Federal National Mortgage Association (FNMA) or the Government National Mortgage Association (GNMA)(“GNMA”).
As of December 31, 2017,2020, there were no0 holdings of securities of any one issuer, other than the collateralized mortgage obligations and mortgage-backed securities issued by the U.S. government and its agencies, in an amount greater than 10% of shareholders’ equity.
Securities with fair values of approximately $245,600$314,962 and $259,499$278,318 at December 31, 20172020 and December 31, 2016,2019, respectively, were pledged to secure public fund deposits and for other purposes as required or permitted by law.
The proceeds from sales of available for sale securities and the associated gains and losses are listed below:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Proceeds from sales |
| $ | 0 |
|
| $ | 3,957 |
|
| $ | 411,796 |
|
Gross gains |
|
| 0 |
|
|
| 0 |
|
|
| 4 |
|
Gross losses |
|
| 0 |
|
|
| (22 | ) |
|
| (54 | ) |
| 2017 | 2016 | 2015 | |||||||||
| Proceeds | $ | 217,111 | $ | 105,808 | $ | 140,668 | |||||
| Gross gains | 180 | 243 | 222 | ||||||||
| Gross losses | (13 | ) | (161 | ) | (145 | ) | |||||
There were 0 held to maturity securities. The Companysecurities sold these securities, which consisted of three municipal securities and two corporate bonds, based upon internal credit analysis that they had experienced significant deterioration in creditworthiness. The risk exposure presented by these securities had increased beyond acceptable levels and management determined that it was reasonably possible that all amounts due would not be collected. The credit analysis of the municipalities determined that they had been significantly impacted by the declines in market oil prices due to the fact that their tax bases are heavily reliant on the energy industry relative to other sectors of the economy. Specifically, the revenues of these municipalities had been adversely impacted by the sustained low-level of oil prices. The current credit analysis of the corporate bonds, which were both a non-agency collateralized mortgage obligation bond, indicated evidence of significant deterioration in its creditworthiness. In early 2017 one bond rating agency withdrew its current rating on the bond, and prior to 2017 another rating agency had downgraded it to a ‘No Rating’ position. The Company believes the sales of these securities were merited and permissible under the applicable accounting guidelines because of the significant deterioration in the creditworthiness of the issuers.
| 2017 | 2016 | 2015 | |||||||||
| Proceeds from sales | $ | 3,298 | $ | 1,866 | $ | — | |||||
| Amortized cost | 3,140 | 1,842 | — | ||||||||
| Gross realized gains | 158 | 24 | — | ||||||||
| Gross realized losses | — | — | — | ||||||||
| Tax expense related to securities gains/losses | (44 | ) | (7 | ) | — | ||||||
The contractual maturities at December 31, 20172020 of available for sale and held to maturity securities at carrying value and estimated fair value are shown below. The Company invests in mortgage-backed securities and collateralized mortgage obligations that have expected maturities that differ from their contractual maturities. These differences arise because borrowers and/or issuers may have the right to call or prepay their obligation with or without call or prepayment penalties.
|
| Available for Sale |
| |||||
December 31, 2020 |
| Amortized Cost |
|
| Estimated Fair Value |
| ||
Due within one year |
| $ | 4,139 |
|
| $ | 4,154 |
|
Due after one year through five years |
|
| 52,050 |
|
|
| 54,688 |
|
Due after five years through ten years |
|
| 60,132 |
|
|
| 63,966 |
|
Due after ten years |
|
| 77,955 |
|
|
| 83,878 |
|
Mortgage-backed securities |
|
| 104,210 |
|
|
| 107,164 |
|
Collateralized mortgage obligations |
|
| 64,611 |
|
|
| 66,945 |
|
Total Securities |
| $ | 363,097 |
|
| $ | 380,795 |
|
F-24
| Available for Sale | Held to Maturity | ||||||||||||||
Amortized Cost | Estimated Fair Value | Amortized Cost | Estimated Fair Value | ||||||||||||
| December 31, 2017 | |||||||||||||||
| Due within one year | $ | — | $ | — | $ | 2,663 | $ | 2,665 | |||||||
| Due after one year through five years | 6,158 | 6,129 | 5,769 | 5,849 | |||||||||||
| Due after five years through ten years | 12,665 | 12,708 | 42,711 | 43,903 | |||||||||||
| Due after ten years | 7,746 | 7,546 | 95,353 | 96,105 | |||||||||||
| Mortgage-backed securities | 92,471 | 90,678 | 22,026 | 21,995 | |||||||||||
| Collateralized mortgage obligations | 116,809 | 115,311 | 6,162 | 6,273 | |||||||||||
| $ | 235,849 | $ | 232,372 | $ | 174,684 | $ | 176,790 | ||||||||
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 4 - LOANS AND ALLOWANCE FOR LOANCREDIT LOSSES
The following table summarizes our loan portfolio by type of loan at December 31:
|
| 2020 |
|
| 2019 |
| ||||||||||
Commercial and industrial |
| $ | 445,771 |
|
| $ | 279,583 |
| ||||||||
Real estate: |
|
|
|
|
|
|
|
| ||||||||
Construction and development |
|
| 270,407 |
|
|
| 280,498 |
| ||||||||
Commercial real estate |
|
| 594,216 |
|
|
| 567,360 |
| ||||||||
Farmland |
|
| 78,508 |
|
|
| 57,476 |
| ||||||||
1-4 family residential |
|
| 389,096 |
|
|
| 412,166 |
| ||||||||
Multi-family residential |
|
| 21,701 |
|
|
| 37,379 |
| ||||||||
Consumer |
|
| 51,044 |
|
|
| 53,245 |
| ||||||||
Agricultural |
|
| 15,734 |
|
|
| 18,359 |
| ||||||||
Overdrafts |
|
| 342 |
|
|
| 329 |
| ||||||||
Total loans(1) |
|
| 1,866,819 |
|
|
| 1,706,395 |
| ||||||||
Net of: |
|
|
|
|
|
|
|
| ||||||||
Deferred loan (fees) costs, net |
|
| (1,463 | ) |
|
| 601 |
| ||||||||
Allowance for credit losses |
|
| (33,619 | ) |
|
| (16,202 | ) | ||||||||
Total net loans(1) |
| $ | 1,831,737 |
|
| $ | 1,690,794 |
| ||||||||
|
|
|
|
|
|
|
|
| ||||||||
(1) Excludes accrued interest receivable on loans of $7.0 million and $6.4 million as of December 31, 2020 and 2019, respectively, which is presented separately on the consolidated balance sheets. |
| |||||||||||||||
| 2017 | 2016 | ||||||
| Commercial and industrial | $ | 197,508 | $ | 223,712 | |||
| Real estate: | |||||||
| Construction and development | 196,774 | 129,631 | |||||
| Commercial real estate | 418,137 | 368,077 | |||||
| Farmland | 59,023 | 62,366 | |||||
| 1-4 family residential | 374,371 | 361,665 | |||||
| Multi-family residential | 36,574 | 26,079 | |||||
| Consumer | 51,267 | 53,177 | |||||
| Agricultural | 25,596 | 18,901 | |||||
| Overdrafts | 294 | 317 | |||||
| Total loans | 1,359,544 | 1,243,925 | |||||
| Net of: | |||||||
| Deferred loan fees | 1,094 | 1,210 | |||||
| Allowance for loan losses | (12,859 | ) | (11,484 | ) | |||
| Total net loans | $ | 1,347,779 | $ | 1,233,651 | |||
The Company has entered into transactions, at prevailing market rates and terms, with certain directors, executive officers, significant shareholders and their affiliates. Loans to such related parties at December 31, 20172020 and December 31, 2016,2019, totaled $44,506$52,559 and $29,436,$33,663, respectively. Unfunded commitments to such related parties at December 31, 20172020 totaled $8,416.
Loans to principal officers, directors, and their affiliates during the year ended December 31, 2017,2020, was as follows:
|
| December 31, 2020 |
| |
Beginning balance |
| $ | 33,663 |
|
New loans |
|
| 58,154 |
|
Effect of changes in composition of related parties |
|
| (39 | ) |
Repayments |
|
| (39,219 | ) |
Ending balance |
| $ | 52,559 |
|
F-25
| 2017 | |||
| Beginning balance | $ | 29,436 | |
| New loans | 38,564 | ||
| Repayments | (23,494 | ) | |
| Ending balance | $ | 44,506 | |
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Allowance for Credit Losses
The Company’s estimate of the allowance for credit losses (“ACL”) reflects losses expected over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected troubled debt restructuring.
The following table presentstables present the activity in the allowance for loan losses and the recorded investment inACL by segment of loans by portfolio segment and based on impairment method for the years ended December 31, 2017, 20162020, 2019 and 2015:2018:
For the Year Ended December 31, 2020 |
| Commercial and industrial |
|
| Construction and development |
|
| Commercial real estate |
|
| Farmland |
|
| 1-4 family residential |
|
| Multi-family residential |
|
| Consumer |
|
| Agricultural |
|
| Overdrafts |
|
| Total |
| ||||||||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance, prior to adoption of ASC 326 |
| $ | 2,056 |
|
| $ | 2,378 |
|
| $ | 6,853 |
|
| $ | 570 |
|
| $ | 3,125 |
|
| $ | 409 |
|
| $ | 602 |
|
| $ | 197 |
|
| $ | 12 |
|
| $ | 16,202 |
|
Impact of adopting ASC 326 |
|
| 546 |
|
|
| 323 |
|
|
| 2,228 |
|
|
| 26 |
|
|
| 1,339 |
|
|
| (50 | ) |
|
| 72 |
|
|
| 73 |
|
|
| (9 | ) |
|
| 4,548 |
|
Provision for credit losses |
|
| 1,398 |
|
|
| 2,034 |
|
|
| 6,698 |
|
|
| 624 |
|
|
| 1,915 |
|
|
| 4 |
|
|
| 373 |
|
|
| (33 | ) |
|
| 187 |
|
|
| 13,200 |
|
Loans charged-off |
|
| (68 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (68 | ) |
|
| — |
|
|
| (155 | ) |
|
| (18 | ) |
|
| (234 | ) |
|
| (543 | ) |
Recoveries |
|
| 101 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 37 |
|
|
| 20 |
|
|
| 51 |
|
|
| 212 |
|
Ending balance |
| $ | 4,033 |
|
| $ | 4,735 |
|
| $ | 15,780 |
|
| $ | 1,220 |
|
| $ | 6,313 |
|
| $ | 363 |
|
| $ | 929 |
|
| $ | 239 |
|
| $ | 7 |
|
| $ | 33,619 |
|
For the Year Ended December 31, 2019 |
| Commercial and industrial |
|
| Construction and development |
|
| Commercial real estate |
|
| Farmland |
|
| 1-4 family residential |
|
| Multi-family residential |
|
| Consumer |
|
| Agricultural |
|
| Overdrafts |
|
| Total |
| ||||||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 1,751 |
|
| $ | 1,920 |
|
| $ | 6,025 |
|
| $ | 643 |
|
| $ | 2,868 |
|
| $ | 631 |
|
| $ | 565 |
|
| $ | 238 |
|
| $ | 10 |
|
| $ | 14,651 |
|
Provision for loan losses |
|
| (117 | ) |
|
| 458 |
|
|
| 827 |
|
|
| (73 | ) |
|
| 268 |
|
|
| (222 | ) |
|
| (2 | ) |
|
| (41 | ) |
|
| 152 |
|
|
| 1,250 |
|
Loans charged-off |
|
| (86 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (14 | ) |
|
| — |
|
|
| (72 | ) |
|
| (89 | ) |
|
| (192 | ) |
|
| (453 | ) |
Recoveries |
|
| 508 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| 111 |
|
|
| 89 |
|
|
| 42 |
|
|
| 754 |
|
Ending balance |
| $ | 2,056 |
|
| $ | 2,378 |
|
| $ | 6,853 |
|
| $ | 570 |
|
| $ | 3,125 |
|
| $ | 409 |
|
| $ | 602 |
|
| $ | 197 |
|
| $ | 12 |
|
| $ | 16,202 |
|
For the Year Ended December 31, 2018 |
| Commercial and industrial |
|
| Construction and development |
|
| Commercial real estate |
|
| Farmland |
|
| 1-4 family residential |
|
| Multi-family residential |
|
| Consumer |
|
| Agricultural |
|
| Overdrafts |
|
| Total |
| ||||||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 1,581 |
|
| $ | 1,724 |
|
| $ | 4,585 |
|
| $ | 523 |
|
| $ | 3,022 |
|
| $ | 629 |
|
| $ | 602 |
|
| $ | 187 |
|
| $ | 6 |
|
| $ | 12,859 |
|
Provision for loan losses |
|
| 426 |
|
|
| 196 |
|
|
| 1,472 |
|
|
| 120 |
|
|
| (196 | ) |
|
| 2 |
|
|
| 127 |
|
|
| (12 | ) |
|
| 115 |
|
|
| 2,250 |
|
Loans charged-off |
|
| (367 | ) |
|
| — |
|
|
| (33 | ) |
|
| — |
|
|
| (93 | ) |
|
| — |
|
|
| (254 | ) |
|
| (2 | ) |
|
| (169 | ) |
|
| (918 | ) |
Recoveries |
|
| 111 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 135 |
|
|
| — |
|
|
| 90 |
|
|
| 65 |
|
|
| 58 |
|
|
| 460 |
|
Ending balance |
| $ | 1,751 |
|
| $ | 1,920 |
|
| $ | 6,025 |
|
| $ | 643 |
|
| $ | 2,868 |
|
| $ | 631 |
|
| $ | 565 |
|
| $ | 238 |
|
| $ | 10 |
|
| $ | 14,651 |
|
| December 31, 2017 | Commercial and industrial | Construction and development | Commercial real estate | Farmland | 1-4 family residential | Multi-family residential | Consumer | Agricultural | Overdrafts | Total | |||||||||||||||||||||||||||||
| Allowance for loan losses: | |||||||||||||||||||||||||||||||||||||||
| Beginning balance | $ | 1,592 | $ | 1,161 | $ | 3,264 | $ | 482 | $ | 3,960 | $ | 281 | $ | 585 | $ | 153 | $ | 6 | $ | 11,484 | |||||||||||||||||||
| Provision for loan losses | 272 | 563 | 1,405 | 41 | (418 | ) | 348 | 253 | 276 | 110 | 2,850 | ||||||||||||||||||||||||||||
| Loans charged-off | (1,080 | ) | — | (84 | ) | — | (543 | ) | — | (344 | ) | (242 | ) | (165 | ) | (2,458 | ) | ||||||||||||||||||||||
| Recoveries | 797 | — | — | — | 23 | — | 108 | — | 55 | 983 | |||||||||||||||||||||||||||||
| Ending balance | $ | 1,581 | $ | 1,724 | $ | 4,585 | $ | 523 | $ | 3,022 | $ | 629 | $ | 602 | $ | 187 | $ | 6 | $ | 12,859 | |||||||||||||||||||
| Allowance ending balance: | |||||||||||||||||||||||||||||||||||||||
| Individually evaluated for impairment | $ | 17 | $ | — | $ | 27 | $ | 85 | $ | 5 | $ | — | $ | — | $ | — | $ | — | $ | 134 | |||||||||||||||||||
| Collectively evaluated for impairment | 1,564 | 1,724 | 4,558 | 438 | 3,017 | 629 | 602 | 187 | 6 | 12,725 | |||||||||||||||||||||||||||||
| Ending balance | $ | 1,581 | $ | 1,724 | $ | 4,585 | $ | 523 | $ | 3,022 | $ | 629 | $ | 602 | $ | 187 | $ | 6 | $ | 12,859 | |||||||||||||||||||
| Loans: | |||||||||||||||||||||||||||||||||||||||
| Individually evaluated for impairment | $ | 463 | $ | — | $ | 4,258 | $ | 163 | $ | 842 | $ | 217 | $ | — | $ | 397 | $ | — | $ | 6,340 | |||||||||||||||||||
| Collectively evaluated for impairment | 197,045 | 196,774 | 413,879 | 58,860 | 373,529 | 36,357 | 51,267 | 25,199 | 294 | 1,353,204 | |||||||||||||||||||||||||||||
| Ending balance | $ | 197,508 | $ | 196,774 | $ | 418,137 | $ | 59,023 | $ | 374,371 | $ | 36,574 | $ | 51,267 | $ | 25,596 | $ | 294 | $ | 1,359,544 | |||||||||||||||||||
| December 31, 2016 | Commercial and industrial | Construction and development | Commercial real estate | Farmland | 1-4 family residential | Multi-family residential | Consumer | Agricultural | Overdrafts | Total | |||||||||||||||||||||||||||||
| Allowance for loan losses: | |||||||||||||||||||||||||||||||||||||||
| Beginning balance | $ | 1,878 | $ | 1,004 | $ | 2,106 | $ | 400 | $ | 2,839 | $ | 325 | $ | 562 | $ | 138 | $ | 11 | $ | 9,263 | |||||||||||||||||||
| Provision for loan losses | 910 | 162 | 1,158 | 82 | 1,117 | (44 | ) | 171 | 15 | 69 | 3,640 | ||||||||||||||||||||||||||||
| Loans charged-off | (1,213 | ) | (9 | ) | — | — | (71 | ) | — | (269 | ) | — | (200 | ) | (1,762 | ) | |||||||||||||||||||||||
| Recoveries | 17 | 4 | — | — | 75 | — | 121 | — | 126 | 343 | |||||||||||||||||||||||||||||
| Ending balance | $ | 1,592 | $ | 1,161 | $ | 3,264 | $ | 482 | $ | 3,960 | $ | 281 | $ | 585 | $ | 153 | $ | 6 | $ | 11,484 | |||||||||||||||||||
| Allowance ending balance: | |||||||||||||||||||||||||||||||||||||||
| Individually evaluated for impairment | $ | 64 | $ | — | $ | — | $ | 47 | $ | 108 | $ | — | $ | 34 | $ | — | $ | — | $ | 253 | |||||||||||||||||||
| Collectively evaluated for impairment | 1,528 | 1,161 | 3,264 | 435 | 3,852 | 281 | 551 | 153 | 6 | 11,231 | |||||||||||||||||||||||||||||
| Ending balance | $ | 1,592 | $ | 1,161 | $ | 3,264 | $ | 482 | $ | 3,960 | $ | 281 | $ | 585 | $ | 153 | $ | 6 | $ | 11,484 | |||||||||||||||||||
| Loans: | |||||||||||||||||||||||||||||||||||||||
| Individually evaluated for impairment | $ | 231 | $ | 1,825 | $ | 1,196 | $ | 258 | $ | 2,588 | $ | 5 | $ | 200 | $ | 15 | $ | — | $ | 6,318 | |||||||||||||||||||
| Collectively evaluated for impairment | 223,481 | 127,806 | 366,881 | 62,108 | 359,077 | 26,074 | 52,977 | 18,886 | 317 | 1,237,607 | |||||||||||||||||||||||||||||
| Ending balance | $ | 223,712 | $ | 129,631 | $ | 368,077 | $ | 62,366 | $ | 361,665 | $ | 26,079 | $ | 53,177 | $ | 18,901 | $ | 317 | $ | 1,243,925 | |||||||||||||||||||
F-26
| December 31, 2015 | Commercial and industrial | Construction and development | Commercial real estate | Farmland | 1-4 family residential | Multi-family residential | Consumer | Agricultural | Overdrafts | Total | |||||||||||||||||||||||||||||
| Allowance for loan losses: | |||||||||||||||||||||||||||||||||||||||
| Beginning balance | $ | 1,473 | $ | 615 | $ | 1,870 | $ | 387 | $ | 2,395 | $ | 232 | $ | 593 | $ | 137 | $ | 19 | $ | 7,721 | |||||||||||||||||||
| Provision for loan losses | 577 | 395 | 289 | (83 | ) | 651 | 93 | 138 | 1 | 114 | 2,175 | ||||||||||||||||||||||||||||
| Loans charged-off | (192 | ) | (6 | ) | (53 | ) | — | (215 | ) | — | (219 | ) | (1 | ) | (227 | ) | (913 | ) | |||||||||||||||||||||
| Recoveries | 20 | — | — | 96 | 8 | — | 50 | 1 | 105 | 280 | |||||||||||||||||||||||||||||
| Ending balance | $ | 1,878 | $ | 1,004 | $ | 2,106 | $ | 400 | $ | 2,839 | $ | 325 | $ | 562 | $ | 138 | $ | 11 | $ | 9,263 | |||||||||||||||||||
| Allowance ending balance: | |||||||||||||||||||||||||||||||||||||||
| Individually evaluated for impairment | $ | 316 | $ | — | $ | — | $ | 47 | $ | 63 | $ | — | $ | 101 | $ | — | $ | — | $ | 527 | |||||||||||||||||||
| Collectively evaluated for impairment | 1,562 | 1,004 | 2,106 | 353 | 2,776 | 325 | 461 | 138 | 11 | 8,736 | |||||||||||||||||||||||||||||
| Ending balance | $ | 1,878 | $ | 1,004 | $ | 2,106 | $ | 400 | $ | 2,839 | $ | 325 | $ | 562 | $ | 138 | $ | 11 | $ | 9,263 | |||||||||||||||||||
| Loans: | |||||||||||||||||||||||||||||||||||||||
| Individually evaluated for impairment | $ | 3,592 | $ | — | $ | 77 | $ | 251 | $ | 2,064 | $ | — | $ | 98 | $ | — | $ | — | $ | 6,082 | |||||||||||||||||||
| Collectively evaluated for impairment | 178,124 | 122,904 | 301,833 | 47,417 | 310,242 | 30,395 | 50,543 | 19,524 | 313 | 1,061,295 | |||||||||||||||||||||||||||||
| Ending balance | $ | 181,716 | $ | 122,904 | $ | 301,910 | $ | 47,668 | $ | 312,306 | $ | 30,395 | $ | 50,641 | $ | 19,524 | $ | 313 | $ | 1,067,377 | |||||||||||||||||||
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Credit Quality
Assets are graded “pass” when the relationship exhibits acceptable credit risk and indicates repayment ability, tolerable collateral coverage and reasonable performance history. Lending relationships exhibiting potentially significant credit risk and marginal repayment ability and/or asset protection are graded “special mention.” Assets classified as “substandard” are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness that jeopardizes the liquidation of the debt. Substandard graded loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Assets graded “doubtful” are substandard graded loans that have added characteristics that make collection or liquidation in full improbable. Loans that are on nonaccrual status are generally classified as substandard.
In general, the loans in our portfolio have low historical credit losses. The Company typically measures impairment based onclosely monitors economic conditions and loan performance trends to manage and evaluate the present value of expected future cash flows, discounted atexposure to credit risk. Key factors tracked by the loan’s effective interest rate, or based onCompany and utilized in evaluating the loan’s observable market price or the fair valuecredit quality of the loan portfolio include trends in delinquency ratios, the level of nonperforming assets, borrower’s repayment capacity, and collateral if the loan is collateral-dependent.
F-27
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The following tables summarizetable summarizes the credit exposure in the Company's consumerCompany’s loan portfolio for each class of loans, by year of origination and commercial loan portfoliosrisk rating, as of:of December 31, 2020:
December 31, 2020 |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| Prior |
|
| Revolving Loans Amortized Cost |
|
| Total |
| ||||||||
Commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ | 278,687 |
|
| $ | 30,563 |
|
| $ | 12,860 |
|
| $ | 4,366 |
|
| $ | 6,131 |
|
| $ | 16,294 |
|
| $ | 90,074 |
|
| $ | 438,975 |
|
Special mention |
|
| 124 |
|
|
| 119 |
|
|
| 222 |
|
|
| 4,040 |
|
|
| 1,324 |
|
|
| — |
|
|
| — |
|
|
| 5,829 |
|
Substandard |
|
| — |
|
|
| 307 |
|
|
| 540 |
|
|
| 50 |
|
|
| 43 |
|
|
| — |
|
|
| — |
|
|
| 940 |
|
Nonaccrual |
|
| — |
|
|
| — |
|
|
| 13 |
|
|
| — |
|
|
| 14 |
|
|
| — |
|
|
| — |
|
|
| 27 |
|
Total commercial and industrial loans |
| $ | 278,811 |
|
| $ | 30,989 |
|
| $ | 13,635 |
|
| $ | 8,456 |
|
| $ | 7,512 |
|
| $ | 16,294 |
|
| $ | 90,074 |
|
| $ | 445,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
| $ | — |
|
| $ | — |
|
| $ | (43 | ) |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | (25 | ) |
| $ | (68 | ) |
Recoveries |
|
| — |
|
|
| — |
|
|
| 43 |
|
|
| — |
|
|
| — |
|
|
| 14 |
|
|
| 44 |
|
|
| 101 |
|
Current period net |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 14 |
|
| $ | 19 |
|
| $ | 33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ | 118,590 |
|
| $ | 76,926 |
|
| $ | 26,212 |
|
| $ | 24,524 |
|
| $ | 7,742 |
|
| $ | 10,507 |
|
| $ | 3,266 |
|
| $ | 267,767 |
|
Special mention |
|
| 356 |
|
|
| — |
|
|
| — |
|
|
| 990 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,346 |
|
Substandard |
|
| — |
|
|
| 609 |
|
|
| 5 |
|
|
| — |
|
|
| 680 |
|
|
| — |
|
|
| — |
|
|
| 1,294 |
|
Nonaccrual |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total construction and development loans |
| $ | 118,946 |
|
| $ | 77,535 |
|
| $ | 26,217 |
|
| $ | 25,514 |
|
| $ | 8,422 |
|
| $ | 10,507 |
|
| $ | 3,266 |
|
| $ | 270,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Recoveries |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Current period net |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ | 91,819 |
|
| $ | 80,753 |
|
| $ | 89,542 |
|
| $ | 72,311 |
|
| $ | 86,946 |
|
| $ | 123,463 |
|
| $ | 5,890 |
|
| $ | 550,724 |
|
Special mention |
|
| — |
|
|
| 2,716 |
|
|
| 3,542 |
|
|
| 849 |
|
|
| 5,724 |
|
|
| 449 |
|
|
| — |
|
|
| 13,280 |
|
Substandard |
|
| — |
|
|
| — |
|
|
| 2,010 |
|
|
| 4,913 |
|
|
| 4,445 |
|
|
| 8,240 |
|
|
| — |
|
|
| 19,608 |
|
Nonaccrual |
|
| — |
|
|
| 1,140 |
|
|
| 151 |
|
|
| 4,158 |
|
|
| 4,769 |
|
|
| 386 |
|
|
| — |
|
|
| 10,604 |
|
Total commercial real estate loans |
| $ | 91,819 |
|
| $ | 84,609 |
|
| $ | 95,245 |
|
| $ | 82,231 |
|
| $ | 101,884 |
|
| $ | 132,538 |
|
| $ | 5,890 |
|
| $ | 594,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Recoveries |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Current period net |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 1 |
|
| $ | — |
|
| $ | 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmland: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ | 17,444 |
|
| $ | 12,668 |
|
| $ | 10,327 |
|
| $ | 6,620 |
|
| $ | 9,904 |
|
| $ | 15,402 |
|
| $ | 5,864 |
|
| $ | 78,229 |
|
Special mention |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 35 |
|
|
| — |
|
|
| 35 |
|
Substandard |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 129 |
|
|
| — |
|
|
| 129 |
|
Nonaccrual |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 115 |
|
|
| — |
|
|
| 115 |
|
Total farmland loans |
| $ | 17,444 |
|
| $ | 12,668 |
|
| $ | 10,327 |
|
| $ | 6,620 |
|
| $ | 9,904 |
|
| $ | 15,681 |
|
| $ | 5,864 |
|
| $ | 78,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Recoveries |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Current period net |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
F-28
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
December 31, 2020 |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| Prior |
|
| Revolving Loans Amortized Cost |
|
| Total |
| ||||||||
1-4 family residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ | 87,578 |
|
| $ | 62,937 |
|
| $ | 52,087 |
|
| $ | 37,224 |
|
| $ | 43,858 |
|
| $ | 93,486 |
|
| $ | 10,091 |
|
| $ | 387,261 |
|
Special mention |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 168 |
|
|
| — |
|
|
| 168 |
|
Substandard |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Nonaccrual |
|
| — |
|
|
| — |
|
|
| 326 |
|
|
| 44 |
|
|
| 163 |
|
|
| 1,134 |
|
|
| — |
|
|
| 1,667 |
|
Total 1-4 family residential loans |
| $ | 87,578 |
|
| $ | 62,937 |
|
| $ | 52,413 |
|
| $ | 37,268 |
|
| $ | 44,021 |
|
| $ | 94,788 |
|
| $ | 10,091 |
|
| $ | 389,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | (9 | ) |
| $ | (59 | ) |
| $ | — |
|
| $ | (68 | ) |
Recoveries |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 2 |
|
Current period net |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | (9 | ) |
| $ | (57 | ) |
| $ | — |
|
| $ | (66 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ | 5,889 |
|
| $ | 4,498 |
|
| $ | 3,617 |
|
| $ | 1,371 |
|
| $ | 1,737 |
|
| $ | 4,391 |
|
| $ | 198 |
|
| $ | 21,701 |
|
Special mention |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Substandard |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Nonaccrual |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total multi-family residential loans |
| $ | 5,889 |
|
| $ | 4,498 |
|
| $ | 3,617 |
|
| $ | 1,371 |
|
| $ | 1,737 |
|
| $ | 4,391 |
|
| $ | 198 |
|
| $ | 21,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Recoveries |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Current period net |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and overdrafts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ | 24,740 |
|
| $ | 11,176 |
|
| $ | 9,369 |
|
| $ | 1,701 |
|
| $ | 735 |
|
| $ | 513 |
|
| $ | 2,825 |
|
| $ | 51,059 |
|
Special mention |
|
| 16 |
|
|
| 83 |
|
|
| 9 |
|
|
| 7 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 115 |
|
Substandard |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Nonaccrual |
|
| 24 |
|
|
| 36 |
|
|
| 131 |
|
|
| 20 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 212 |
|
Total consumer loans and overdrafts |
| $ | 24,780 |
|
| $ | 11,295 |
|
| $ | 9,509 |
|
| $ | 1,728 |
|
| $ | 736 |
|
| $ | 513 |
|
| $ | 2,825 |
|
| $ | 51,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
| $ | (243 | ) |
| $ | (63 | ) |
| $ | (31 | ) |
| $ | (43 | ) |
| $ | (3 | ) |
| $ | (6 | ) |
| $ | — |
|
| $ | (389 | ) |
Recoveries |
|
| 49 |
|
|
| 2 |
|
|
| 12 |
|
|
| 8 |
|
|
| 4 |
|
|
| 13 |
|
|
| — |
|
|
| 88 |
|
Current period net |
| $ | (194 | ) |
| $ | (61 | ) |
| $ | (19 | ) |
| $ | (35 | ) |
| $ | 1 |
|
| $ | 7 |
|
| $ | — |
|
| $ | (301 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ | 3,489 |
|
| $ | 1,718 |
|
| $ | 1,893 |
|
| $ | 607 |
|
| $ | 273 |
|
| $ | 189 |
|
| $ | 7,408 |
|
| $ | 15,577 |
|
Special mention |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 36 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 36 |
|
Substandard |
|
| — |
|
|
| 7 |
|
|
| 10 |
|
|
| — |
|
|
| 24 |
|
|
| — |
|
|
| — |
|
|
| 41 |
|
Nonaccrual |
|
| — |
|
|
| — |
|
|
| 33 |
|
|
| — |
|
|
| 45 |
|
|
| 2 |
|
|
| — |
|
|
| 80 |
|
Total agricultural loans |
| $ | 3,489 |
|
| $ | 1,725 |
|
| $ | 1,936 |
|
| $ | 643 |
|
| $ | 342 |
|
| $ | 191 |
|
| $ | 7,408 |
|
| $ | 15,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
| $ | — |
|
| $ | — |
|
| $ | (18 | ) |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | (18 | ) |
Recoveries |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 20 |
|
|
| — |
|
|
| — |
|
|
| 20 |
|
Current period net |
| $ | — |
|
| $ | — |
|
| $ | (18 | ) |
| $ | — |
|
| $ | 20 |
|
| $ | — |
|
| $ | — |
|
| $ | 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ | 628,236 |
|
| $ | 281,239 |
|
| $ | 205,907 |
|
| $ | 148,724 |
|
| $ | 157,326 |
|
| $ | 264,245 |
|
| $ | 125,616 |
|
| $ | 1,811,293 |
|
Special mention |
|
| 496 |
|
|
| 2,918 |
|
|
| 3,773 |
|
|
| 5,922 |
|
|
| 7,048 |
|
|
| 652 |
|
|
| — |
|
|
| 20,809 |
|
Substandard |
|
| — |
|
|
| 923 |
|
|
| 2,565 |
|
|
| 4,963 |
|
|
| 5,192 |
|
|
| 8,369 |
|
|
| — |
|
|
| 22,012 |
|
Nonaccrual |
|
| 24 |
|
|
| 1,176 |
|
|
| 654 |
|
|
| 4,222 |
|
|
| 4,992 |
|
|
| 1,637 |
|
|
| — |
|
|
| 12,705 |
|
Total loans |
| $ | 628,756 |
|
| $ | 286,256 |
|
| $ | 212,899 |
|
| $ | 163,831 |
|
| $ | 174,558 |
|
| $ | 274,903 |
|
| $ | 125,616 |
|
| $ | 1,866,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
| $ | (243 | ) |
| $ | (63 | ) |
| $ | (92 | ) |
| $ | (43 | ) |
| $ | (12 | ) |
| $ | (65 | ) |
| $ | (25 | ) |
| $ | (543 | ) |
Recoveries |
|
| 49 |
|
|
| 2 |
|
|
| 55 |
|
|
| 8 |
|
|
| 24 |
|
|
| 30 |
|
|
| 44 |
|
|
| 212 |
|
Total current period net (charge-offs) recoveries |
| $ | (194 | ) |
| $ | (61 | ) |
| $ | (37 | ) |
| $ | (35 | ) |
| $ | 12 |
|
| $ | (35 | ) |
| $ | 19 |
|
| $ | (331 | ) |
| December 31, 2017 | Commercial and industrial | Construction and development | Commercial real estate | Farmland | 1-4 family residential | Multi-family residential | Consumer and Overdrafts | Agricultural | Total | ||||||||||||||||||||||||||
| Grade: | |||||||||||||||||||||||||||||||||||
| Pass | $ | 196,890 | $ | 196,515 | $ | 412,488 | $ | 58,623 | $ | 373,154 | $ | 16,073 | $ | 51,409 | $ | 24,650 | $ | 1,329,802 | |||||||||||||||||
| Special mention | 348 | 259 | 1,135 | 226 | 442 | 20,284 | 65 | 454 | 23,213 | ||||||||||||||||||||||||||
| Substandard | 270 | — | 4,514 | 174 | 775 | 217 | 87 | 492 | 6,529 | ||||||||||||||||||||||||||
| Doubtful | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Total | $ | 197,508 | $ | 196,774 | $ | 418,137 | $ | 59,023 | $ | 374,371 | $ | 36,574 | $ | 51,561 | $ | 25,596 | $ | 1,359,544 | |||||||||||||||||
| December 31, 2016 | Commercial and industrial | Construction and development | Commercial real estate | Farmland | 1-4 family residential | Multi-family residential | Consumer and Overdrafts | Agricultural | Total | ||||||||||||||||||||||||||
| Grade: | |||||||||||||||||||||||||||||||||||
| Pass | $ | 218,690 | $ | 127,802 | $ | 360,591 | $ | 61,717 | $ | 352,196 | $ | 25,871 | $ | 52,320 | $ | 17,965 | $ | 1,217,152 | |||||||||||||||||
| Special mention | 4,299 | 4 | 2,021 | 248 | 4,311 | — | 524 | 478 | 11,885 | ||||||||||||||||||||||||||
| Substandard | 706 | 1,825 | 5,465 | 401 | 5,121 | 208 | 568 | 458 | 14,752 | ||||||||||||||||||||||||||
| Doubtful | 17 | — | — | — | 37 | — | 82 | — | 136 | ||||||||||||||||||||||||||
| Total | $ | 223,712 | $ | 129,631 | $ | 368,077 | $ | 62,366 | $ | 361,665 | $ | 26,079 | $ | 53,494 | $ | 18,901 | $ | 1,243,925 | |||||||||||||||||
F-29
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The following table summarizes the credit exposure in the Company’s loan portfolio by class as of December 31, 2019:
December 31, 2019 |
| Commercial and industrial |
|
| Construction and development |
|
| Commercial real estate |
|
| Farmland |
|
| 1-4 family residential |
|
| Multi-family residential |
|
| Consumer and Overdrafts |
|
| Agricultural |
|
| Total |
| |||||||||
Grade: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ | 279,217 |
|
| $ | 278,679 |
|
| $ | 548,662 |
|
| $ | 57,152 |
|
| $ | 409,896 |
|
| $ | 37,379 |
|
| $ | 53,327 |
|
| $ | 18,101 |
|
| $ | 1,682,413 |
|
Special mention |
|
| 153 |
|
|
| 600 |
|
|
| 1,071 |
|
|
| 91 |
|
|
| 1,425 |
|
|
| — |
|
|
| 192 |
|
|
| 126 |
|
|
| 3,658 |
|
Substandard |
|
| 213 |
|
|
| 1,219 |
|
|
| 17,627 |
|
|
| 233 |
|
|
| 845 |
|
|
| — |
|
|
| 55 |
|
|
| 132 |
|
|
| 20,324 |
|
Total |
| $ | 279,583 |
|
| $ | 280,498 |
|
| $ | 567,360 |
|
| $ | 57,476 |
|
| $ | 412,166 |
|
| $ | 37,379 |
|
| $ | 53,574 |
|
| $ | 18,359 |
|
| $ | 1,706,395 |
|
There were 0 loans classified in the “doubtful” or “loss” risk rating categories as of December 31, 2020 and December 31, 2019.
The following table presents the amortized cost basis of individually evaluated collateral-dependent loans by class of loans, and their impact on ACL, as of December 31, 2020:
|
| Real Estate |
|
| Non-RE |
|
| Total |
|
| Allowance for Credit Losses Allocation |
| ||||
Commercial and industrial |
| $ | 129 |
|
| $ | — |
|
| $ | 129 |
|
| $ | 44 |
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development |
|
| 609 |
|
|
| — |
|
|
| 609 |
|
|
| 208 |
|
Commercial real estate |
|
| 9,989 |
|
|
| — |
|
|
| 9,989 |
|
|
| 2,048 |
|
Total |
| $ | 10,727 |
|
| $ | — |
|
| $ | 10,727 |
|
| $ | 2,300 |
|
The following tables summarize the payment status of loans in the Company’s total loan portfolio, including an aging of delinquent loans and loans 90 days or more past due continuing to accrue interest and loans classified as nonperforming as of:
December 31, 2020 |
| 30 to 59 Days Past Due |
|
| 60 to 89 Days Past Due |
|
| 90 Days and Greater Past Due |
|
| Total Past Due |
|
| Current |
|
| Total Loans |
|
| Recorded Investment > 90 Days and Accruing |
| |||||||
Commercial and industrial |
| $ | 385 |
|
| $ | 25 |
|
| $ | 22 |
|
| $ | 432 |
|
| $ | 445,339 |
|
| $ | 445,771 |
|
| $ | — |
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development |
|
| 256 |
|
|
| — |
|
|
| — |
|
|
| 256 |
|
|
| 270,151 |
|
|
| 270,407 |
|
|
| — |
|
Commercial real estate |
|
| 1,094 |
|
|
| — |
|
|
| 10,105 |
|
|
| 11,199 |
|
|
| 583,017 |
|
|
| 594,216 |
|
|
| — |
|
Farmland |
|
| 117 |
|
|
| 3 |
|
|
| — |
|
|
| 120 |
|
|
| 78,388 |
|
|
| 78,508 |
|
|
| — |
|
1-4 family residential |
|
| 2,097 |
|
|
| 556 |
|
|
| 127 |
|
|
| 2,780 |
|
|
| 386,316 |
|
|
| 389,096 |
|
|
| — |
|
Multi-family residential |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 21,701 |
|
|
| 21,701 |
|
|
| — |
|
Consumer |
|
| 383 |
|
|
| 124 |
|
|
| 97 |
|
|
| 604 |
|
|
| 50,440 |
|
|
| 51,044 |
|
|
| — |
|
Agricultural |
|
| 50 |
|
|
| 46 |
|
|
| 45 |
|
|
| 141 |
|
|
| 15,593 |
|
|
| 15,734 |
|
|
| — |
|
Overdrafts |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 342 |
|
|
| 342 |
|
|
| — |
|
Total |
| $ | 4,382 |
|
| $ | 754 |
|
| $ | 10,396 |
|
| $ | 15,532 |
|
| $ | 1,851,287 |
|
| $ | 1,866,819 |
|
| $ | — |
|
F-30
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
December 31, 2019 |
| 30 to 59 Days Past Due |
|
| 60 to 89 Days Past Due |
|
| 90 Days and Greater Past Due |
|
| Total Past Due |
|
| Current |
|
| Total Loans |
|
| Recorded Investment > 90 Days and Accruing |
| |||||||
Commercial and industrial |
| $ | 321 |
|
| $ | 53 |
|
| $ | 15 |
|
| $ | 389 |
|
| $ | 279,194 |
|
| $ | 279,583 |
|
| $ | — |
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development |
|
| 161 |
|
|
| — |
|
|
| — |
|
|
| 161 |
|
|
| 280,337 |
|
|
| 280,498 |
|
|
| — |
|
Commercial real estate |
|
| 1,181 |
|
|
| 49 |
|
|
| 882 |
|
|
| 2,112 |
|
|
| 565,248 |
|
|
| 567,360 |
|
|
| — |
|
Farmland |
|
| 103 |
|
|
| — |
|
|
| — |
|
|
| 103 |
|
|
| 57,373 |
|
|
| 57,476 |
|
|
| — |
|
1-4 family residential |
|
| 2,514 |
|
|
| 1,433 |
|
|
| 845 |
|
|
| 4,792 |
|
|
| 407,374 |
|
|
| 412,166 |
|
|
| — |
|
Multi-family residential |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 37,379 |
|
|
| 37,379 |
|
|
| — |
|
Consumer |
|
| 373 |
|
|
| 152 |
|
|
| 96 |
|
|
| 621 |
|
|
| 52,624 |
|
|
| 53,245 |
|
|
| — |
|
Agricultural |
|
| 51 |
|
|
| 67 |
|
|
| — |
|
|
| 118 |
|
|
| 18,241 |
|
|
| 18,359 |
|
|
| — |
|
Overdrafts |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 329 |
|
|
| 329 |
|
|
| — |
|
Total |
| $ | 4,704 |
|
| $ | 1,754 |
|
| $ | 1,838 |
|
| $ | 8,296 |
|
| $ | 1,698,099 |
|
| $ | 1,706,395 |
|
| $ | — |
|
| December 31, 2017 | 30 – 59 Days Past Due | 60 – 89 Days Past Due | 90 Days and Greater Past Due | Total Past Due | Current | Total Loans | Recorded Investment > 90 Days and Accruing | ||||||||||||||||||||
| Commercial and industrial | $ | 1,273 | $ | 93 | $ | 17 | $ | 1,383 | $ | 196,125 | $ | 197,508 | $ | — | |||||||||||||
| Real estate: | |||||||||||||||||||||||||||
| Construction and development | 117 | — | — | 117 | 196,657 | 196,774 | — | ||||||||||||||||||||
| Commercial real estate | 192 | 265 | 1,067 | 1,524 | 416,613 | 418,137 | — | ||||||||||||||||||||
| Farmland | 139 | — | 6 | 145 | 58,878 | 59,023 | — | ||||||||||||||||||||
| 1-4 family residential | 3,998 | 416 | 800 | 5,214 | 369,157 | 374,371 | — | ||||||||||||||||||||
| Multi-family residential | — | — | 217 | 217 | 36,357 | 36,574 | — | ||||||||||||||||||||
| Consumer | 381 | 69 | 87 | 537 | 50,730 | 51,267 | — | ||||||||||||||||||||
| Agricultural | 204 | 2 | — | 206 | 25,390 | 25,596 | — | ||||||||||||||||||||
| Overdrafts | — | — | — | — | 294 | 294 | — | ||||||||||||||||||||
| Total | $ | 6,304 | $ | 845 | $ | 2,194 | $ | 9,343 | $ | 1,350,201 | $ | 1,359,544 | $ | — | |||||||||||||
| December 31, 2016 | 30 – 59 Days Past Due | 60 – 89 Days Past Due | 90 Days and Greater Past Due | Total Past Due | Current | Total Loans | Recorded Investment > 90 Days and Accruing | ||||||||||||||||||||
| Commercial and industrial | $ | 941 | $ | 105 | $ | 25 | $ | 1,071 | $ | 222,641 | $ | 223,712 | $ | — | |||||||||||||
| Real estate: | |||||||||||||||||||||||||||
| Construction and development | 73 | — | 1,825 | 1,898 | 127,733 | 129,631 | — | ||||||||||||||||||||
| Commercial real estate | 1,629 | 32 | 134 | 1,795 | 366,282 | 368,077 | — | ||||||||||||||||||||
| Farmland | 100 | 26 | 7 | 133 | 62,233 | 62,366 | — | ||||||||||||||||||||
| 1-4 family residential | 3,724 | 803 | 1,041 | 5,568 | 356,097 | 361,665 | — | ||||||||||||||||||||
| Multi-family residential | 207 | 49 | — | 256 | 25,823 | 26,079 | — | ||||||||||||||||||||
| Consumer | 613 | 205 | 87 | 905 | 52,272 | 53,177 | — | ||||||||||||||||||||
| Agricultural | 59 | — | 15 | 74 | 18,827 | 18,901 | — | ||||||||||||||||||||
| Overdrafts | — | — | — | — | 317 | 317 | — | ||||||||||||||||||||
| Total | $ | 7,346 | $ | 1,220 | $ | 3,134 | $ | 11,700 | $ | 1,232,225 | $ | 1,243,925 | $ | — | |||||||||||||
The following table presents theinformation regarding nonaccrual loans by category as of December 31:of:
|
| 2020 |
|
| 2019 |
| ||
Commercial and industrial |
| $ | 27 |
|
| $ | 46 |
|
Real estate: |
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 10,604 |
|
|
| 6,860 |
|
Farmland |
|
| 115 |
|
|
| 182 |
|
1-4 family residential |
|
| 1,667 |
|
|
| 3,853 |
|
Consumer and overdrafts |
|
| 212 |
|
|
| 279 |
|
Agricultural |
|
| 80 |
|
|
| 42 |
|
Total |
| $ | 12,705 |
|
| $ | 11,262 |
|
| 2017 | 2016 | ||||||
| Commercial and industrial | $ | 77 | $ | 82 | |||
| Real estate: | |||||||
| Construction and development | — | 1,825 | |||||
| Commercial real estate | 1,422 | 415 | |||||
| Farmland | 163 | 176 | |||||
| 1-4 family residential | 1,937 | 1,699 | |||||
| Multi-family residential | 217 | 5 | |||||
| Consumer | 138 | 192 | |||||
| Agricultural | 50 | 15 | |||||
| Total | $ | 4,004 | $ | 4,409 | |||
If interest on nonaccrual loans had been accrued, such income would have been approximately $173$821 and $24$637 for the years ended December 31, 20172020 and 2016,2019, respectively. There were no commitments to lend additional funds to borrowers whose loans were classified as impaired.
Troubled Debt Restructurings
A troubled debt restructuring (“TDR”) is a restructuring in which a bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. In response to the COVID-19 pandemic, the Bank provided financial relief to many of its customers through a 3-month principal and interest payment deferral program or an up to 6-month interest only program. Most modifications made as a direct result of COVID-19 are not TDRs pursuant to the CARES Act and the April 7, 2020 Interagency guidance. As of December 31, 2020 there were loans with balances of $62,133 modified pursuant to the CARES Act and GAAP, therefore not classified as TDRs.
The outstanding balances of TDRs are shown below at December 31:
|
| 2020 |
|
| 2019 |
| ||
Nonaccrual TDRs |
| $ | 90 |
|
| $ | 101 |
|
Performing TDRs |
|
| 9,626 |
|
|
| 7,240 |
|
Total |
| $ | 9,716 |
|
| $ | 7,341 |
|
Specific reserves on TDRs |
| $ | 0 |
|
| $ | 164 |
|
F-31
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The following table presents the loans by class, modified as TDRs that occurred during the year ended:
December 31, 2020 |
| Number of Contracts |
|
| Pre-Modification Outstanding Recorded Investment |
|
| Post-Modification Outstanding Recorded Investment |
| |||
Troubled Debt Restructurings: |
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development |
|
| 2 |
|
| $ | 1,289 |
|
| $ | 1,081 |
|
Commercial and industrial |
|
| 1 |
|
|
| 129 |
|
|
| 85 |
|
Commercial real estate |
|
| 1 |
|
|
| 1,017 |
|
|
| 670 |
|
Total |
|
| 4 |
|
| $ | 2,435 |
|
| $ | 1,836 |
|
There were no TDRs that subsequently defaulted during 2020. The TDRs described above did 0t increase the allowance for credit losses and resulted in 0 charge-offs during the year ended December 31, 2020.
The following table presents the loan by class, modified as a TDR that occurred during the year ended:
December 31, 2019 |
| Number of Contracts |
|
| Pre-Modification Outstanding Recorded Investment |
|
| Post-Modification Outstanding Recorded Investment |
| |||
Troubled Debt Restructurings: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 4 |
|
| $ | 1,680 |
|
| $ | 1,515 |
|
Total |
|
| 4 |
|
| $ | 1,680 |
|
| $ | 1,515 |
|
There were two TDRs that subsequently defaulted during 2019 and remained on nonaccrual status as of December 31, 2019. The TDRs described above did 0t increase the allowance for loan losses and resulted in 0 charge-offs during the year ended December 31, 2019.
F-32
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The following table presents loans individually and collectively evaluated for impairment, and the respective allowance for loan losses as of December 31, 2019, as determined in accordance with ASC 310, prior to the adoption of ASC 326. A loan iswas considered impaired when, based on current information and events, it iswas probable that the Company willwould be unable to collect all amounts due from the borrower in accordance with original contractual terms of the loan. Loans with insignificant delays or insignificant short falls in the amount of payments expected to be collected arewere not considered to be impaired. Loans defined as individually impaired based on applicable accounting guidance, includeincluded larger balance nonperformingnon-performing loans and TDRs.
December 31, 2019 |
| Unpaid Principal Balance |
|
| Recorded Investment |
|
| Related Allowance |
|
| Average Recorded Investment |
| ||||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
| $ | 289 |
|
| $ | 289 |
|
| $ | — |
|
| $ | 312 |
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development |
|
| 1,212 |
|
|
| 1,212 |
|
|
| — |
|
|
| 1,259 |
|
Commercial real estate |
|
| 4,612 |
|
|
| 4,612 |
|
|
| — |
|
|
| 4,244 |
|
Farmland |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
1-4 family residential |
|
| 2,498 |
|
|
| 2,498 |
|
|
| — |
|
|
| 1,798 |
|
Multi-family residential |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Consumer |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Agricultural |
|
| 62 |
|
|
| 62 |
|
|
| — |
|
|
| 190 |
|
Subtotal |
|
| 8,673 |
|
|
| 8,673 |
|
|
| — |
|
|
| 7,803 |
|
With allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 61 |
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Commercial real estate |
|
| 12,871 |
|
|
| 12,871 |
|
|
| 1,587 |
|
|
| 9,111 |
|
Farmland |
|
| 133 |
|
|
| 133 |
|
|
| 62 |
|
|
| 135 |
|
1-4 family residential |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 78 |
|
Multi-family residential |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Consumer |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Agricultural |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Subtotal |
|
| 13,004 |
|
|
| 13,004 |
|
|
| 1,649 |
|
|
| 9,385 |
|
Total |
| $ | 21,677 |
|
| $ | 21,677 |
|
| $ | 1,649 |
|
| $ | 17,188 |
|
| 2017 | 2016 | ||||||
| Nonaccrual TDRs | $ | — | $ | 43 | |||
| Performing TDRs | 657 | 462 | |||||
| Total | $ | 657 | $ | 505 | |||
| Specific reserves on TDRs | $ | 17 | $ | 4 | |||
| December 31, 2017 | Number of Contracts | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | |||||||
| Troubled Debt Restructurings: | ||||||||||
| Commercial and industrial | 2 | $ | 381 | $ | 364 | |||||
| Commercial real estate | — | — | ||||||||
| Consumer | — | — | — | |||||||
| 1-4 family residential | 1 | 11 | 11 | |||||||
| Farmland | — | — | — | |||||||
| Multi-family residential | — | — | — | |||||||
| Agricultural | — | — | — | |||||||
| Total | 3 | $ | 392 | $ | 375 | |||||
| December 31, 2016 | Number of Contracts | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | |||||||
| Troubled Debt Restructurings: | ||||||||||
| Commercial and industrial | 1 | $ | 90 | $ | 90 | |||||
| 1-4 family residential | 3 | 248 | 244 | |||||||
| Total | 4 | $ | 338 | $ | 334 | |||||
| December 31, 2017 | Unpaid Principal Balance | Recorded Investment | Related Allowance | Average Recorded Investment | |||||||||||
| With no related allowance recorded: | |||||||||||||||
| Commercial and industrial | $ | 437 | $ | 437 | $ | — | $ | 434 | |||||||
| Real estate: | |||||||||||||||
| Construction and development | — | — | — | 311 | |||||||||||
| Commercial real estate | 3,979 | 3,979 | — | 4,230 | |||||||||||
| Farmland | 6 | 6 | — | 90 | |||||||||||
| 1-4 family residential | 681 | 681 | — | 1,096 | |||||||||||
| Multi-family residential | 217 | 217 | — | 180 | |||||||||||
| Consumer | — | — | — | 61 | |||||||||||
| Agricultural | 397 | 397 | — | 384 | |||||||||||
| Subtotal | 5,717 | 5,717 | — | 6,786 | |||||||||||
| With allowance recorded: | |||||||||||||||
| Commercial and industrial | 26 | 26 | 17 | 315 | |||||||||||
| Real estate: | |||||||||||||||
| Construction and development | — | — | — | 7 | |||||||||||
| Commercial real estate | 279 | 279 | 27 | 505 | |||||||||||
| Farmland | 157 | 157 | 85 | 131 | |||||||||||
| 1-4 family residential | 161 | 161 | 5 | 754 | |||||||||||
| Multi-family residential | — | — | — | 19 | |||||||||||
| Consumer | — | — | — | 42 | |||||||||||
| Agricultural | — | — | — | 180 | |||||||||||
| Subtotal | 623 | 623 | 134 | 1,953 | |||||||||||
| Total | $ | 6,340 | $ | 6,340 | $ | 134 | $ | 8,739 | |||||||
| December 31, 2016 | Recorded Investment | Unpaid Principal Balance | Related Allowance | Average Recorded Investment | |||||||||||
| With no related allowance recorded: | |||||||||||||||
| Commercial and industrial | $ | 28 | $ | 28 | $ | — | $ | 809 | |||||||
| Real estate: | |||||||||||||||
| Construction and development | 1,825 | 1,825 | — | 172 | |||||||||||
| Commercial real estate | 1,196 | 1,196 | — | 871 | |||||||||||
| Farmland | 89 | 89 | — | 109 | |||||||||||
| 1-4 family residential | 1,799 | 1,799 | — | 1,575 | |||||||||||
| Multi-family residential | 5 | 5 | — | 2 | |||||||||||
| Consumer | 105 | 105 | — | 89 | |||||||||||
| Agricultural | 15 | 15 | — | 68 | |||||||||||
| Subtotal | 5,062 | 5,062 | — | 3,695 | |||||||||||
| With allowance recorded: | |||||||||||||||
| Commercial and industrial | 203 | 203 | 64 | 3,153 | |||||||||||
| Real estate: | |||||||||||||||
| Construction and development | — | — | — | — | |||||||||||
| Commercial real estate | — | — | — | — | |||||||||||
| Farmland | 169 | 169 | 47 | 169 | |||||||||||
| 1-4 family residential | 789 | 789 | 108 | 639 | |||||||||||
| Multi-family residential | — | — | — | — | |||||||||||
| Consumer | 95 | 95 | 34 | 155 | |||||||||||
| Agricultural | — | — | — | 2 | |||||||||||
| Subtotal | 1,256 | 1,256 | 253 | 4,118 | |||||||||||
| Total | $ | 6,318 | $ | 6,318 | $ | 253 | $ | 7,813 | |||||||
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment balances, by type, were as follows:
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
Land |
| $ | 10,944 |
|
| $ | 10,944 |
|
Building and improvements |
|
| 58,569 |
|
|
| 54,809 |
|
Furniture, fixtures and equipment |
|
| 19,641 |
|
|
| 17,960 |
|
Automobiles |
|
| 400 |
|
|
| 495 |
|
|
|
| 89,554 |
|
|
| 84,208 |
|
Less: accumulated depreciation |
|
| 34,342 |
|
|
| 30,777 |
|
|
| $ | 55,212 |
|
| $ | 53,431 |
|
| December 31, 2017 | December 31, 2016 | ||||||
| Land | $ | 9,857 | $ | 9,959 | |||
| Building and improvements | 45,525 | 44,240 | |||||
| Furniture, fixtures and equipment | 12,845 | 14,188 | |||||
| Automobiles | 247 | 368 | |||||
| 68,474 | 68,755 | ||||||
| Less: accumulated depreciation | 24,656 | 23,945 | |||||
| $ | 43,818 | $ | 44,810 | ||||
F-33
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Depreciation expense on premises and equipment totaled $3,162, $3,183$4,117, $3,886 and $2,958$3,400 for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively, and is included in occupancy expenses on the consolidated statements of earnings.
NOTE 6 - GOODWILL
Changes in the carrying amount of goodwill in the accompanying consolidated balance sheets as of December 31 are summarized as follows:
|
| 2020 |
|
| 2019 |
| ||
Beginning of year |
| $ | 32,160 |
|
| $ | 32,160 |
|
Effect of acquisitions |
|
| 0 |
|
|
| 0 |
|
End of year |
| $ | 32,160 |
|
| $ | 32,160 |
|
| 2017 | 2016 | ||||||
| Beginning of year | $ | 18,742 | $ | 18,601 | |||
| Effect of acquisitions | — | 141 | |||||
| End of year | $ | 18,742 | $ | 18,742 | |||
NOTE 7 - CORE DEPOSIT INTANGIBLES
Changes in the carrying amount of core deposit intangibles in the accompanying consolidated balance sheets as of December 31 are summarized as follows:
|
| 2020 |
|
| 2019 |
| ||
Beginning of year |
| $ | 3,853 |
|
| $ | 4,706 |
|
Amortization |
|
| (854 | ) |
|
| (853 | ) |
End of year |
| $ | 2,999 |
|
| $ | 3,853 |
|
| 2017 | 2016 | ||||||
| Beginning of year | $ | 3,308 | $ | 3,846 | |||
| Effect of acquisitions | — | 42 | |||||
| Amortization | (584 | ) | (580 | ) | |||
| End of year | $ | 2,724 | $ | 3,308 | |||
Accumulated amortization was $3,107$5,532 and $2,523$4,678 at December 31, 20172020 and 2016,2019, respectively. Amortization expense related to core deposit intangibles was $584, $580$854, $853 and $535$718 during the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively. The estimated aggregate future amortization expense for core deposit intangibles remaining as of December 31, 20172020 was as follows:
Year Ended December 31, |
| Amount |
| |
2021 |
| $ | 687 |
|
2022 |
|
| 453 |
|
2023 |
|
| 441 |
|
2024 |
|
| 424 |
|
2025 |
|
| 316 |
|
Thereafter |
|
| 678 |
|
|
| $ | 2,999 |
|
| Year Ended December 31, | Amount | ||
| 2018 | $ | 584 | |
| 2019 | 584 | ||
| 2020 | 584 | ||
| 2021 | 417 | ||
| 2022 | 183 | ||
| Thereafter | 372 | ||
| $ | 2,724 | ||
NOTE 8 - INTEREST-BEARING DEPOSITS
Interest-bearing deposits, by type of account, were as follows as of:
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
NOW accounts |
| $ | 259,357 |
|
| $ | 202,672 |
|
Savings and money market accounts |
|
| 868,643 |
|
|
| 712,972 |
|
Time deposits $250,000 or less |
|
| 245,796 |
|
|
| 300,608 |
|
Time deposits greater than $250,000 |
|
| 132,854 |
|
|
| 214,687 |
|
|
| $ | 1,506,650 |
|
| $ | 1,430,939 |
|
| December 31, 2017 | December 31, 2016 | ||||||
| NOW accounts | $ | 263,980 | $ | 269,712 | |||
| Savings and money market accounts | 705,491 | 606,706 | |||||
| Time deposits less than $250,000 | 207,185 | 239,569 | |||||
| Time deposits $250,000 and over | 89,655 | 102,052 | |||||
| $ | 1,266,311 | $ | 1,218,039 | ||||
F-34
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Year-end maturities of time deposits, as of December 31, 2017,2020, were as follows:
Year Ended December 31, |
| Amount |
| |
2021 |
| $ | 306,760 |
|
2022 |
|
| 50,257 |
|
2023 |
|
| 13,755 |
|
2024 |
|
| 5,162 |
|
2025 |
|
| 2,716 |
|
Thereafter |
|
| 0 |
|
|
| $ | 378,650 |
|
| Year Ended December 31, | Amount | ||
| 2018 | $ | 224,772 | |
| 2019 | 39,553 | ||
| 2020 | 9,926 | ||
| 2021 | 14,709 | ||
| 2022 | 7,880 | ||
| Thereafter | — | ||
| $ | 296,840 | ||
Deposits of executive officers, directors and significant shareholders at December 31, 20172020 and December 31, 20162019 totaled $68,082$46,192 and $72,443,$59,658, respectively.
NOTE 9 - BORROWED MONEY
Federal Home Loan Bank (FHLB)(“FHLB”) advances, , as of December 31, 2017,2020, were as follows:
Fixed-rate advances, with monthly interest payments, principal due in:
Year |
| Current Weighted Average Rate |
|
| Principal Due |
| ||
2021 |
|
| 0.15 | % |
| $ | 101,500 |
|
2022 |
|
| 1.99 | % |
|
| 1,500 |
|
2023 |
|
| 0.00 | % |
|
| — |
|
2024 |
|
| 1.76 | % |
|
| 6,000 |
|
2025 |
|
| 0.00 | % |
|
| — |
|
|
|
|
|
|
|
| 109,000 |
|
| Year | Current Weighted Average Rate | Principal due | |||||
| 2018 | 1.06 | % | $ | 25,000 | |||
| 2022 | 1.11 | % | 20,000 | ||||
| 45,000 | |||||||
Fixed-rate advances, with monthly principal and interest payments, principal due in:
Year |
| Current Weighted Average Rate |
|
| Principal Due |
| ||
2021 |
|
| 1.38 | % |
|
| 101 |
|
|
|
|
|
|
|
| 101 |
|
|
|
|
|
|
| $ | 109,101 |
|
| Year | Current Weighted Average Rate | Principal due | |||||
| 2021 | 1.38 | % | 153 | ||||
| $ | 45,153 | ||||||
The Company had ahas an unsecured $25,000 revolving line of credit with a correspondent bank that was set to mature in July 2016. In May 2016, the Company renegotiated the loan agreement such that $15,000 was renewed as a revolving line of credit and $10,000 of the outstanding balance of the revolving line of credit was rolled into an amortizing note. As of December 31, 2016, the outstanding balances of the revolving line of credit and amortizing note were $9,000. In March 2017, the Company renegotiated the loan agreement such that the outstanding balance of the revolving line of credit and amortizing note was converted to a $25,000 unsecured revolving line of credit. The line of credit bears interest at the greater of (i) the prime rate, plus 0.50%which was 3.25% at December 31, 2020, or (ii) the rate floor of 3.50%, with quarterly interest payments, and matures in March 2018.2021. Under the terms of the line of credit, the Company agreed not to pledge or grant a lien or security interest in the stock of the Bank or in any other assets without prior consent of the lender. As of December 31, 2017, the2020, there was a $12,000 outstanding balance on the line of credit was $0.credit. To be in compliance with the loan covenants, the Bank is required to maintain no less than a 10% total risk-based capital ratio, must maintain no less than $85,000 in tangible net worth, the ratio of non-performing assets to equity plus allowance for loan losses must not exceed 15%, the cash flow coverage must be greater than 1.25 times, the ratio of other additional debt to total assets must not exceed
F-35
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
15%, and the Company is limited to acquiring additional debt of no more than $500 without prior approval. The Company believes that it is in compliance with all loan covenants.
NOTE 10 - SUBORDINATED DEBENTURES
Subordinated debentures are made up of the following as of:
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
Trust II Debentures |
| $ | 3,093 |
|
| $ | 3,093 |
|
Trust III Debentures |
|
| 2,062 |
|
|
| 2,062 |
|
DCB Trust I Debentures |
|
| 5,155 |
|
|
| 5,155 |
|
Other debentures |
|
| 9,500 |
|
|
| 500 |
|
|
| $ | 19,810 |
|
| $ | 10,810 |
|
| December 31, 2017 | December 31, 2016 | ||||||
| Trust II Debentures | $ | 3,093 | $ | 3,093 | |||
| Trust III Debentures | 2,062 | 2,062 | |||||
| DCB Trust I Debentures | 5,155 | 5,155 | |||||
| Other debentures | 3,500 | 9,000 | |||||
| $ | 13,810 | $ | 19,310 | ||||
The Company has three trusts, Guaranty (TX) Capital Trust II (“Trust II”), Guaranty (TX) Capital Trust III (“Trust III”), and DCB Financial Trust I ("DCB Trust I") (“Trust II”, “Trust III” and together with "DCB Trust I", the “Trusts”). Upon formation, the Trusts issued pass-through securities (“TruPS”) with a liquidation value of $1,000,000 per share to third parties in private placements. Concurrently with the issuance of the TruPS, the Trusts issued common securities to the Company. The Trusts invested the proceeds of the sales of securities to the Company (“Debentures”). The Debentures mature approximately 30 years after the formation date, which may be shortened if certain conditions are met (including the Company having received prior approval of the Federal Reserve and any other required regulatory approvals).
|
| Trust II |
|
| Trust III |
|
| DCB Trust I |
| |||
Formation date |
| October 30, 2002 |
|
| July 25, 2006 |
|
| March 29, 2007 |
| |||
Capital trust pass-through securities |
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares |
|
| 3,000 |
|
|
| 2,000 |
|
|
| 5,000 |
|
Original liquidation value |
| $ | 3,000 |
|
| $ | 2,000 |
|
| $ | 5,000 |
|
Common securities liquidation value |
|
| 93 |
|
|
| 62 |
|
|
| 155 |
|
| Trust II | Trust III | DCB Trust I | |||||||||
| Formation date | Oct 30, 2002 | Jul 25, 2006 | Mar 29, 2007 | ||||||||
| Capital trust pass-through securities | |||||||||||
| Number of shares | 3,000 | 2,000 | 5,000 | ||||||||
| Original liquidation value | $ | 3,000 | $ | 2,000 | $ | 5,000 | |||||
| Common securities liquidation value | 93 | 62 | 155 | ||||||||
The securities held by the Trusts can qualify as Tier I capital for the Company under Federal Reserve Board guidelines. The Federal Reserve’s guidelines restrict core capital elements (including trust preferred securities and qualifying perpetual preferred stock) to 25% of all core capital elements, net of goodwill less any associated deferred tax liability. Because the Company’s aggregate amount of trust preferred securities is less than the limit of 25% of Tier I capital, net of goodwill, the full amount is includable in Tier I capital at December 31, 20172020 and 2016.2019. Additionally, the terms provide that trust preferred securities would no longer qualify for Tier I capital within five years of their maturity, but would be included as Tier 2 capital. However, the trust preferred securities would be amortized out of Tier 2 capital by one-fifth each year and excluded from Tier 2 capital completely during the year prior to maturity of the junior subordinated debentures.
With certain exceptions, the amount of the principal and any accrued and unpaid interest on the Debentures are subordinated in right of payment to the prior payment in full of all senior indebtedness of the Company. Interest on the Debentures are payable quarterly. The interest is deferrable on a cumulative basis for up to five consecutive years following a suspension of dividend payments on all other capital stock. No principal payments are due until maturity for each of the Debentures.
F-36
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
|
| Trust II Debentures |
|
| Trust III Debentures |
|
| DCB Trust I Debentures |
| |||
Original amount |
| $ | 3,093 |
|
| $ | 2,062 |
|
| $ | 5,155 |
|
Maturity date |
| October 30, 2032 |
|
| October 1, 2036 |
|
| June 15, 2037 |
| |||
Interest due |
| Quarterly |
|
| Quarterly |
|
| Quarterly |
| |||
| Trust II Debentures | Trust III Debentures | DCB Trust I Debentures | |||
| Original amount | $3,093 | $2,062 | $5,155 | ||
| Maturity date | October 30, 2032 | October 1, 2036 | June 15, 2037 | ||
| Interest due | Quarterly | Quarterly | Quarterly | ||
In accordance with ASC 810, “
Consolidation,” the junior subordinated debentures issued by the Company to the subsidiary trusts are shown as liabilities in the consolidated balance sheets and interest expense associated with the junior subordinated debentures is shown in the consolidated statements of earnings.Trust II Debentures
Interest is payable at a variable rate per annum, reset quarterly, equal to 3 months LIBOR plus 3.35%, thereafter.
On any interest payment date on or after October 30, 2012 and prior to maturity date, the debentures are redeemable for cash at the option of the Company, on at least 30, but not more than 60 daysdays' notice, in whole or in part, at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued interest to the date of redemption.
Trust III Debentures
Interest was payable at a variable rate per annum, reset quarterly, equal to 3 month LIBOR plus 1.67%.
On any interest payment date on or after October 1, 2016 and prior to maturity date, the debentures are redeemable for cash at the option of the Company, on at least 30, but not more than 60 daysdays' notice, in whole or in part, at a redemption price is equal to 100% of the principal amount if redeemed, plus accrued interest to the date of redemption.
DCB Debentures I
Interest is payable at a variable rate per annum, reset quarterly, equal to 3 month LIBOR plus 1.80%.
On any interest payment date on or after June 15, 2012 and prior to maturity date, the debentures are redeemable for cash at the option of the Company, on at least 30, but not more than 60 daysdays' notice, in whole or in part, at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued interest to the date of redemption.
Other Debentures
In July 2015, the Company issued $4,000 in debentures, of which $3,000 were issued to directors and other related parties. The $3,000 of debentures to related parties were repaid in May 2017 and a $500 par value debenture, which carried a 2.5%2.50% rate, matured and was repaid in July 2017. The remaining $500 debenture hashad a rate of 4.00%, matured and a maturity date ofwas paid off in January 1, 2019. At the Company’s option, and with 30 days advanced notice to the holder, the entire principal amount and all accrued interest may be paid to the holder on or before the due date of any debenture. The redemption price is equal to 100% of the face amount of the debenture redeemed, plus all accrued interest.
In December 2015, the Company issued $5,000 in debentures, of which $2,500 were issued to directors and other related parties. In May 2017, $2,000 of the related party debentures were repaid with a portion of the proceeds of Guaranty'sGuaranty’s initial public offering. A further $1,000 of other debentures matured and were paid off in full in July of 2018 and another $1,000 and $500 of debentures matured and were paid off in July and December of 2019, respectively. The remaining $3,000final $500 debenture was paid off during the second quarter of 2020.
F-37
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
In May 2020, the Company issued $10,000 in debentures to directors and other related parties. The debentures were issued at a par value of $500 each with fixed annual rates ranging from 3.00% to 5.00%between 1.00% and 4.00% and maturity dates from Julybetween November 1, 2018 to July2020 and November 1, 2024. $500 of debentures matured and were paid off in November of 2020. At the Company’s option, and with 30 days advanced notice to the holder, the entire principal amount and all accrued interest may be paid to the holder on or before the due date of any debenture. The redemption price is equal to 100% of the face amount of the debenture redeemed, plus all accrued interest.
The scheduled principal payments and weighted average rates of subordinatedother debentures based on scheduled repayments at December 31, 2017 are as follows (in thousands of dollars):follows:
Year |
| Current Weighted Average Rate |
|
| Principal Due |
| ||
2022 |
|
| 2.45 | % |
| $ | 2,000 |
|
2023 |
|
| 2.85 | % |
|
| 3,500 |
|
2024 |
|
| 3.74 | % |
|
| 4,000 |
|
|
|
|
|
|
| $ | 9,500 |
|
| Year Ended December 31 | Amount | ||
| 2018 | $ | 1,000 | |
| 2019 | 2,000 | ||
| 2020 | 500 | ||
| 2021 | — | ||
| 2022 | — | ||
| Thereafter | 10,310 | ||
| $ | 13,810 | ||
NOTE 11 - STOCK OPTIONS
The Company’s 2015 Equity Incentive Plan (the “Plan”), which was adopted by the Company and approved by its shareholders in April 2015, amended and restated the Company's 2014 Stock Option Plan.2015. The maximum number of shares of common stock that may be issued pursuant to stock-based awards under the Plan equals 1,000,000 shares, all of which may be subject to incentive stock option treatment. Option awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant; those option awards have vesting periods ranging from 5 to 10 years and have 10-year contractual terms.
The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company’s common stock and similar peer group averages. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes in to account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on U.S. Treasury yield curve in effect at the time of the grant.
The fair value of options granted was determined using the following weighted-average assumptions as of grant date, for the years ended December 31:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Risk-free interest rate |
|
| 0.79 | % |
|
| 2.11 | % |
|
| 2.87 | % |
Expected term (in years) |
|
| 6.50 |
|
|
| 6.50 |
|
|
| 6.50 |
|
Expected stock price volatility |
|
| 22.26 | % |
|
| 19.89 | % |
|
| 20.10 | % |
Dividend yield |
|
| 2.56 | % |
|
| 2.36 | % |
|
| 1.76 | % |
| 2017 | 2016 | ||||
| Risk-free interest rate | 2.00 | % | 1.57 | % | |
| Expected term (in years) | 6.46 | 6.50 | |||
| Expected stock price volatility | 18.54 | % | 20.92 | % | |
| Dividend yield | 1.61 | % | 2.13 | % | |
F-38
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
A summary of activity in the Plan during the years ended December 31 follows:
2020 |
| Number of Shares |
|
| Weighted- Average Exercise Price |
|
| Weighted- Average Remaining Contractual Life in Years |
|
| Aggregate Intrinsic Value |
| ||||
Outstanding at beginning of year |
|
| 508,000 |
|
| $ | 26.68 |
|
|
| 6.24 |
|
| $ | 3,159 |
|
Granted |
|
| 74,000 |
|
|
| 28.67 |
|
|
| 9.57 |
|
|
| 145 |
|
Exercised |
|
| (26,600 | ) |
|
| 24.00 |
|
|
| 1.79 |
|
|
| 158 |
|
Forfeited |
|
| (49,200 | ) |
|
| 29.71 |
|
|
| 7.58 |
|
|
| 84 |
|
Balance, December 31, 2020 |
|
| 506,200 |
|
| $ | 26.81 |
|
|
| 5.82 |
|
| $ | 1,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period |
|
| 291,520 |
|
| $ | 25.63 |
|
|
| 4.74 |
|
| $ | 1,339 |
|
2019 |
| Number of Shares |
|
| Weighted- Average Exercise Price |
|
| Weighted- Average Remaining Contractual Life in Years |
|
| Aggregate Intrinsic Value |
| ||||
Outstanding at beginning of year |
|
| 537,872 |
|
| $ | 26.49 |
|
|
| 6.97 |
|
| $ | 2,088 |
|
Granted |
|
| 39,000 |
|
|
| 29.89 |
|
|
| 9.40 |
|
|
| 117 |
|
Exercised |
|
| (37,672 | ) |
|
| 24.55 |
|
|
| 4.11 |
|
|
| 314 |
|
Forfeited |
|
| (31,200 | ) |
|
| 30.04 |
|
|
| 8.02 |
|
|
| 89 |
|
Balance, December 31, 2019 |
|
| 508,000 |
|
| $ | 26.68 |
|
|
| 6.24 |
|
| $ | 3,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period |
|
| 256,880 |
|
| $ | 25.21 |
|
|
| 5.18 |
|
| $ | 1,971 |
|
| 2017 | Number of Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Life in Years | Aggregate Intrinsic Value | ||||||||
| Outstanding at beginning of year | 340,377 | $ | 23.43 | 7.34 | $ | 194 | ||||||
| Granted | 159,598 | 27.80 | 9.40 | 480 | ||||||||
| Exercised | (7,033 | ) | 11.94 | 4.23 | 132 | |||||||
| Forfeited | (21,500 | ) | 25.58 | 8.59 | 109 | |||||||
| Balance, December 31, 2017 | 471,442 | $ | 24.98 | 7.30 | $ | 2,696 | ||||||
| Exercisable at end of year | 134,644 | $ | 23.60 | 5.85 | $ | 950 | ||||||
| 2016 | Number of Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Life in Years | Aggregate Intrinsic Value | ||||||||
| Outstanding at beginning of year | 314,391 | $ | 23.28 | 8.00 | $ | 137 | ||||||
| Granted | 49,500 | 23.58 | 9.38 | 21 | ||||||||
| Exercised | (3,014 | ) | 11.94 | 2.51 | 36 | |||||||
| Forfeited | (20,500 | ) | 23.22 | 7.74 | 16 | |||||||
| Balance, December 31, 2016 | 340,377 | $ | 23.43 | 7.34 | $ | 194 | ||||||
| Exercisable at end of year | 89,677 | $ | 22.61 | 6.45 | $ | 125 | ||||||
A summary of nonvested activity in the Plan during the years ended December 31 follows:
2020 |
| Number of Shares |
|
| Weighted- Average Exercise Price |
|
| Weighted- Average Remaining Contractual Life in Years |
|
| Aggregate Intrinsic Value |
| ||||
Outstanding at beginning of year |
|
| 251,120 |
|
| $ | 28.18 |
|
|
| 7.31 |
|
| $ | 1,188 |
|
Granted |
|
| 74,000 |
|
|
| 28.67 |
|
|
| 9.57 |
|
|
| 145 |
|
Vested |
|
| (71,040 | ) |
|
| 27.26 |
|
|
| 6.00 |
|
|
| 230 |
|
Forfeited |
|
| (39,400 | ) |
|
| 29.71 |
|
|
| 7.58 |
|
|
| 84 |
|
Balance, December 31, 2020 |
|
| 214,680 |
|
| $ | 28.42 |
|
|
| 7.28 |
|
| $ | 466 |
|
F-39
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
2019 |
| Number of Shares |
|
| Weighted- Average Exercise Price |
|
| Weighted- Average Remaining Contractual Life in Years |
|
| Aggregate Intrinsic Value |
| ||||
Outstanding at beginning of year |
|
| 331,560 |
|
| $ | 27.74 |
|
|
| 7.77 |
|
| $ | 975 |
|
Granted |
|
| 39,000 |
|
|
| 29.89 |
|
|
| 9.40 |
|
|
| 117 |
|
Vested |
|
| (91,040 | ) |
|
| 26.71 |
|
|
| 6.02 |
|
|
| 563 |
|
Forfeited |
|
| (28,400 | ) |
|
| 33.00 |
|
|
| 8.81 |
|
|
| 89 |
|
Balance, December 31, 2019 |
|
| 251,120 |
|
| $ | 28.18 |
|
|
| 7.31 |
|
| $ | 1,188 |
|
| 2017 | Number of Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Life in Years | Aggregate Intrinsic Value | ||||||||
| Outstanding at beginning of year | 250,700 | $ | 23.73 | 7.65 | $ | 69 | ||||||
| Granted | 159,598 | 27.80 | 9.40 | 480 | ||||||||
| Vested | (54,500 | ) | 23.72 | 6.35 | 378 | |||||||
| Forfeited | (19,000 | ) | 25.58 | 8.59 | 109 | |||||||
| Balance, December 31, 2017 | 336,798 | $ | 25.54 | 7.88 | $ | 1,747 | ||||||
| 2016 | Number of Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Life in Years | Aggregate Intrinsic Value | ||||||||
| Outstanding at beginning of year | 267,200 | $ | 23.72 | 8.22 | $ | — | ||||||
| Granted | 49,500 | 23.58 | 9.38 | 21 | ||||||||
| Vested | (47,700 | ) | 23.72 | 6.95 | 14 | |||||||
| Forfeited | (18,300 | ) | 23.22 | 7.74 | 16 | |||||||
| Balance, December 31, 2016 | 250,700 | $ | 23.73 | 7.65 | $ | 69 | ||||||
Information related to the Plan is as follows for the yearyears ended December 31:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Intrinsic value of options exercised |
| $ | 158 |
|
| $ | 314 |
|
| $ | 102 |
|
Cash received from options exercised |
|
| 638 |
|
|
| 925 |
|
|
| 327 |
|
Weighted average fair value of options granted |
|
| 4.46 |
|
|
| 4.97 |
|
|
| 6.69 |
|
Restricted Stock Awards
A summary of restricted stock activity in the Plan during the years ended December 31, 2020 and 2019 follows:
2020 |
| Number of Shares |
|
| Weighted-Average Grant Date Fair Value |
| ||
Outstanding at beginning of year |
|
| 31,459 |
|
| $ | 30.29 |
|
Granted |
|
| 19,500 |
|
|
| 29.32 |
|
Vested |
|
| (15,179 | ) |
|
| 30.33 |
|
Forfeited |
| �� | (480 | ) |
|
| 31.57 |
|
Balance, December 31, 2020 |
|
| 35,300 |
|
| $ | 29.72 |
|
2019 |
| Number of Shares |
|
| Weighted-Average Grant Date Fair Value |
| ||
Outstanding at beginning of year |
|
| 2,398 |
|
| $ | 31.57 |
|
Granted |
|
| 30,500 |
|
|
| 30.25 |
|
Vested |
|
| (1,439 | ) |
|
| 31.57 |
|
Forfeited |
|
| 0 |
|
|
| 0 |
|
Balance, December 31, 2019 |
|
| 31,459 |
|
| $ | 30.29 |
|
| 2017 | 2016 | |||||||
| Intrinsic value of options exercised | $ | 132 | $ | 36 | ||||
| Cash received from options exercised | 84 | 36 | ||||||
| Tax benefit realized from options exercised | — | — | ||||||
| Weighted average fair value of options granted | 5.41 | 4.30 | ||||||
Restricted stock granted to employees typically vests over five years, but vesting periods may vary. Compensation expense for these grants will be recognized over the vesting period of the awards based on the fair value of the stock at the issue date.
F-40
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
As of December 31, 2017,2020, there was $1,781$1,980 of total unrecognized compensation expense related to unvested stock options and restricted stock granted under the Plan. The expense is expected to be recognized over a weighted-average period of 4.283.34 years.
The Company granted options and restricted stock under the 2015 Stock Option Plan in 2017.2020, 2019 and 2018. Expense of $355, $211$749, $663 and $237$592 was recorded during the years ended December 31, 2017, 20162020, 2019 and 2015, respectively.
NOTE 12 - STOCK APPRECIATION RIGHTS
KSOP
The Company maintains an Employee Stock Ownership Plan containing Section 401(k) provisions covering substantially all employees (“KSOP”). The plan provides for a matching contribution of up to 5% of a participant’s qualified compensation starting January 1, 2016. At December 31, 2016, the plan included a repurchase obligation or "put option", which is a right to demand that the sponsor repurchase shares of employer stock distributed to the participate under the terms of the plan, for which there was no public market for such shares, of an established cash
Benefits under the KSOP generally are distributed to participants in the form of cash, although participants have the right to receive distributions in the form of shares of common stock.
As of December 31, 2016, the fair value of shares of common stock, held by the KSOP, was deducted from permanent shareholders’ equity in the consolidated balance sheets,2020 and reflected in a line item below liabilities and above shareholders’ equity. This presentation is necessary in order to recognize the put option within the KSOP-owned shares, consistent with SEC guidelines, because the Company was not yet publicly traded. The Company used a valuation by an external third party to determine the maximum possible cash obligation related to those securities. The valuation is the same that is used for the stock option plan and stock appreciation rights plan. Increases or decreases in the value of the cash obligation were included in a separate line item in the statements of changes in shareholders’ equity. The fair value of allocated and unallocated shares subject to this repurchase obligation totaled $31,661 at December 31, 2016.
Executive Incentive Retirement Plan
The Company established a non-qualified, non-contributory executive incentive retirement plan covering a selected group of key personnel to provide benefits equal to amounts computed under an “award criteria” at various targeted salary levels as adjusted for annual earnings performance of the Company. The plan is non-funded.
In connection with the Salary Continuation Plan and the Executive Incentive Retirement Plan, the Company has purchased life insurance policies on the respective officers. The cash surrender value of life insurance policies held by the Company totaled $19,117$35,510 and $17,804$34,495 as of December 31, 20172020 and 2016,2019, respectively.
Expense related to these plans totaled $447, $390$592, $602 and $303$502 for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively, and is included in employee compensation and benefits on the Company's consolidated statements of earnings. The recorded liability totaled approximately $2,420$4,383 and $2,002$4,081 as of December 31, 20172020 and 2016,2019, respectively and is included in accrued interest and other liabilities on the Company's consolidated balance sheets.
Bonus Plan
The Company has a Bonus Plan that rewards officers and employees based on performance of individual business units of the Company. Earnings and growth performance goals for each business unit and for the Company as a whole are established at the beginning of the calendar year and approved annually by the board of directors. The Bonus Plan provides for a predetermined bonus amount to be contributed to the employee bonus pool based on (i) earnings target and growth for individual business units and (ii) achieving certain pre-tax return on average equity and pre-tax return on average asset levels for the Company as a whole. These bonus amounts are established annually by our board of directors. The bonus expense under this plan for the years ended December 31, 2017, 20162020, 2019 and 20152018 totaled $2,316, $2,069$3,164,
F-41
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
$3,265 and $1,828,$2,943, respectively and is included in employee compensation and benefits on the Company's consolidated statements of earnings.
NOTE 13 - LEASES
The Company has operating leases for bank locations, ATMs, corporate offices, and certain other arrangements, which have remaining lease terms of 1 year to 14 years. Some of the Company’s operating leases include options to extend the leases for up to 7 years.
Operating leases in which we are the lessee must be recorded as right-of-use assets with corresponding lease liabilities. The right-of-use asset represents our right to utilize the underlying asset during the lease term, while the lease liability represents the obligation of the Company to make periodic lease payments over the life of the lease. The associated operating lease costs are comprised of the amortization of the right-of-use asset and the implicit interest accreted on the lease liability, which is recognized on a straight-line basis over the life of the lease. As of December 31, 2020 and 2019, operating lease right-of-use assets were $13,291 and $11,554, respectively, and liabilities were $13,539 and $11,675, respectively, and were included within the accompanying consolidated balance sheet as components of other assets and other liabilities, respectively.
Operating lease expense for operating leases accounted for under ASC 842 for the years ended December 31, 2020 and 2019 was approximately $1,954 and $1,881, respectively, and is included as a component of occupancy expenses within the accompanying consolidated statements of earnings.
The table below summarizes other information related to our operating leases as of:
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
Operating leases |
|
|
|
|
|
|
|
|
Operating lease right-of-use assets |
| $ | 13,291 |
|
| $ | 11,554 |
|
Operating lease liabilities |
|
| 13,539 |
|
|
| 11,675 |
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term |
|
|
|
|
|
|
|
|
Operating leases |
| 9 years |
|
| 10 years |
| ||
Weighted average discount rate |
|
|
|
|
|
|
|
|
Operating leases |
|
| 2.19 | % |
|
| 2.69 | % |
The Company leases some of its banking facilities under non-cancelable operating leases expiring in various years through 2025 and thereafter. Minimum future lease payments under these non-cancelable operating leases within ASC 842 as of December 31, 2020, are as follows:
Year Ended December 31, |
| Amount |
| |
2021 |
| $ | 1,956 |
|
2022 |
|
| 1,779 |
|
2023 |
|
| 1,747 |
|
2024 |
|
| 1,750 |
|
2025 |
|
| 1,627 |
|
Thereafter |
|
| 6,091 |
|
Total lease payments |
|
| 14,950 |
|
Less: interest |
|
| (1,411 | ) |
Present value of lease liabilities |
| $ | 13,539 |
|
F-42
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 14 - INCOME TAXES
Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act was enacted on December 22, 2017. Among other things, the new law (i) establishes a new, flat corporate federal statutory income tax rate of 21%, (ii) eliminates the corporate alternative minimum tax and allows the use of any such carryforwards to offset regular tax liability for any taxable year, (iii) limits the deduction for net interest expense incurred by U.S. corporations, (iv) allows businesses to immediately expense, for tax purposes,
As stated above, as a result of the enactment of the Tax Cuts and Jobs Act on December 22, 2017, we remeasured our deferred tax assets and liabilities based upon the newly enacted U.S. statutory federal income tax rate of 21%, which is the tax rate at which these assets and liabilities are expected to reverse in the future. Notwithstanding the foregoing, we are still analyzing certain aspects of the new law and refining our calculations, which could affect the measurement of these assets and liabilities or give rise to new deferred tax amounts. Nonetheless, we recognized a provisional tax expense related to the remeasurement of our deferred tax assets and liabilities totaling $1.7 million.
Management of the Company considers the likelihood of changes by taxing authorities in its filed income tax returns and discloses potential significant changes that management believes are more likely than not to occur upon examination by tax authorities. Management has not identified any uncertain tax positions in previously filed income tax returns that require disclosure in the accompanying consolidated financial statements. The Company is subject to U.S. federal income taxes.
The consolidated provision for income taxes were as follows as of December 31:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Current federal tax expense |
| $ | 10,542 |
|
| $ | 6,097 |
|
| $ | 5,288 |
|
Deferred federal tax (benefit) expense |
|
| (4,647 | ) |
|
| (319 | ) |
|
| (683 | ) |
Revaluation of net deferred tax assets due to change in U.S. federal statutory income tax rate |
|
| 0 |
|
|
| 0 |
|
|
| (6 | ) |
Total |
| $ | 5,895 |
|
| $ | 5,778 |
|
| $ | 4,599 |
|
| 2017 | 2016 | 2015 | |||||||||
| Current federal tax expense | $ | 5,803 | $ | 6,045 | $ | 5,551 | |||||
| Deferred federal tax (benefit) | 740 | (1,330 | ) | (1,189 | ) | ||||||
| Revaluation of net deferred tax assets due to change in U.S. federal statutory income tax rate | 1,695 | — | — | ||||||||
| Total | $ | 8,238 | $ | 4,715 | $ | 4,362 | |||||
The provision for federal income taxes differs from that computed by applying federal statutory rates to income before federal income tax expense, as indicated in the following analysis as of December 31:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Federal statutory income tax at 21% |
| $ | 6,992 |
|
| $ | 6,732 |
|
| $ | 5,291 |
|
Tax exempt interest income |
|
| (1,065 | ) |
|
| (1,027 | ) |
|
| (968 | ) |
Revaluation of net deferred tax assets due to change in U.S. federal statutory income tax rate |
|
| 0 |
|
|
| 0 |
|
|
| (6 | ) |
Earnings of bank owned life insurance |
|
| (182 | ) |
|
| (192 | ) |
|
| (113 | ) |
Nondeductible expenses |
|
| 356 |
|
|
| 462 |
|
|
| 566 |
|
Other |
|
| (206 | ) |
|
| (197 | ) |
|
| (171 | ) |
Total |
| $ | 5,895 |
|
| $ | 5,778 |
|
| $ | 4,599 |
|
| 2017 | 2016 | 2015 | |||||||||
| Federal statutory income tax at 35% | $ | 7,937 | $ | 5,893 | $ | 5,066 | |||||
| Tax exempt interest income | (1,560 | ) | (1,428 | ) | (818 | ) | |||||
| Revaluation of net deferred tax assets due to change in U.S. federal statutory income tax rate | 1,695 | — | — | ||||||||
| Earnings of bank owned life insurance | (161 | ) | (128 | ) | (147 | ) | |||||
| Non deductible expenses | 577 | 223 | 320 | ||||||||
| Other | (250 | ) | 155 | (59 | ) | ||||||
| Total | $ | 8,238 | $ | 4,715 | $ | 4,362 | |||||
F-43
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Income tax expense for 20172018 was impacted by the adjustment of our deferred tax assets and liabilities related to the reduction in the U.S. federal statutory income tax rate to 21% under the Tax Cuts and Jobs Act, which was enacted on December 22, 2017. As a result of the new law, which is more fully discussedand as detailed in the table above, we recognized a provisional net tax expensebenefit resulting from the finalization of those calculations totaling $1.7 million, as reported$6 in 2018.
The following table summarizes the table above.
|
| 2020 |
|
| 2019 |
| ||
Deferred tax assets: |
|
|
|
|
|
|
|
|
Allowance for credit losses |
| $ | 7,060 |
|
| $ | 3,402 |
|
Deferred compensation |
|
| 920 |
|
|
| 857 |
|
Bonus accrual |
|
| 422 |
|
|
| 399 |
|
Deferred loan fees, net |
|
| 259 |
|
|
| 0 |
|
Accretion of acquisition allowance |
|
| 112 |
|
|
| 183 |
|
Other real estate owned |
|
| 2 |
|
|
| 134 |
|
Other |
|
| 437 |
|
|
| 420 |
|
Total deferred tax assets |
|
| 9,212 |
|
|
| 5,395 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Unrealized gain on available for sale securities |
|
| (3,717 | ) |
|
| (526 | ) |
Premises and equipment |
|
| (2,721 | ) |
|
| (2,353 | ) |
Prepaid expenses |
|
| (343 | ) |
|
| (270 | ) |
Deferred loan costs, net |
|
| 0 |
|
|
| (137 | ) |
Intangibles |
|
| (350 | ) |
|
| (470 | ) |
Other |
|
| (42 | ) |
|
| (101 | ) |
Total deferred tax liabilities |
|
| (7,173 | ) |
|
| (3,857 | ) |
Net deferred tax asset |
| $ | 2,039 |
|
| $ | 1,538 |
|
| 2017 | 2016 | ||||||
| Deferred tax assets: | |||||||
| Allowance for loan losses | $ | 2,758 | $ | 4,192 | |||
| Deferred compensation | 508 | 701 | |||||
| Unrealized loss on available for sale securities | 730 | 1,140 | |||||
| Stock appreciation rights | — | 197 | |||||
| Non accrual loans | — | 90 | |||||
| Other real estate owned | 2 | 18 | |||||
| Basis in securities | — | 282 | |||||
| Other | 556 | 1,479 | |||||
| Total deferred tax assets | 4,554 | 8,099 | |||||
| Deferred tax liabilities: | |||||||
| Premises and equipment | (1,432 | ) | (2,447 | ) | |||
| Prepaid Expenses | (179 | ) | — | ||||
| Deferred loan costs, net | (230 | ) | (388 | ) | |||
| Intangibles | (116 | ) | (299 | ) | |||
| Other | (54 | ) | (73 | ) | |||
| Total deferred tax liabilities | (2,011 | ) | (3,207 | ) | |||
| Net deferred tax asset | $ | 2,543 | $ | 4,892 | |||
NOTE 15 - NONINTEREST INCOME AND NONINTEREST EXPENSE
Other operating income consisted of the following for the years ended December 31:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Fiduciary and custodial income |
| $ | 2,012 |
|
| $ | 1,760 |
|
| $ | 1,587 |
|
Bank-owned life insurance income |
|
| 838 |
|
|
| 774 |
|
|
| 570 |
|
Merchant and debit card fees |
|
| 5,515 |
|
|
| 4,264 |
|
|
| 3,642 |
|
Loan processing fee income |
|
| 628 |
|
|
| 590 |
|
|
| 589 |
|
Warehouse lending fees |
|
| 957 |
|
|
| 679 |
|
|
| 471 |
|
Mortgage fee income |
|
| 771 |
|
|
| 323 |
|
|
| 283 |
|
Other noninterest income |
|
| 2,418 |
|
|
| 2,029 |
|
|
| 2,303 |
|
Total |
| $ | 13,139 |
|
| $ | 10,419 |
|
| $ | 9,445 |
|
| 2017 | 2016 | 2015 | |||||||||
| Fiduciary income | $ | 1,463 | $ | 1,405 | $ | 1,432 | |||||
| Bank-owned life insurance income | 461 | 453 | 421 | ||||||||
| Merchant and debit card fees | 3,119 | 2,741 | 2,737 | ||||||||
| Loan processing fee income | 597 | 622 | 501 | ||||||||
| Other noninterest income | 2,745 | 2,465 | 1,769 | ||||||||
| Total | $ | 8,385 | $ | 7,686 | $ | 6,860 | |||||
F-44
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Other operating expense consisted of the following for the years ended December 31:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Legal and professional fees |
| $ | 2,650 |
|
| $ | 2,610 |
|
| $ | 3,080 |
|
Software support fees |
|
| 4,104 |
|
|
| 3,341 |
|
|
| 2,502 |
|
Amortization |
|
| 1,349 |
|
|
| 1,378 |
|
|
| 1,228 |
|
Director and committee fees |
|
| 846 |
|
|
| 873 |
|
|
| 1,029 |
|
Advertising and promotions |
|
| 1,498 |
|
|
| 1,655 |
|
|
| 1,410 |
|
ATM and debit card expense |
|
| 1,951 |
|
|
| 1,347 |
|
|
| 1,127 |
|
Office and computer supplies |
|
| 645 |
|
|
| 470 |
|
|
| 416 |
|
Postage |
|
| 268 |
|
|
| 302 |
|
|
| 310 |
|
Telecommunication expense |
|
| 864 |
|
|
| 676 |
|
|
| 649 |
|
FDIC insurance assessment fees |
|
| 821 |
|
|
| 173 |
|
|
| 625 |
|
Other real estate owned expenses and write-downs |
|
| 77 |
|
|
| 59 |
|
|
| 157 |
|
Other noninterest expense |
|
| 4,036 |
|
|
| 3,900 |
|
|
| 3,721 |
|
Total |
| $ | 19,109 |
|
| $ | 16,784 |
|
| $ | 16,254 |
|
| 2017 | 2016 | 2015 | |||||||||
| Legal and professional fees | $ | 2,061 | $ | 1,935 | $ | 2,064 | |||||
| Software support fees | 2,089 | 1,870 | 1,840 | ||||||||
| Amortization | 1,033 | 980 | 951 | ||||||||
| Director and committee fees | 1,064 | 940 | 859 | ||||||||
| Advertising and promotions | 1,193 | 1,015 | 918 | ||||||||
| ATM and debit card expense | 899 | 933 | 1,201 | ||||||||
| Office and computer supplies | 426 | 464 | 495 | ||||||||
| Postage | 301 | 325 | 310 | ||||||||
| Telecommunication expense | 526 | 609 | 572 | ||||||||
| FDIC insurance assessment fees | 671 | 1,200 | 743 | ||||||||
| Other real estate owned expenses and write-downs | 128 | 140 | 118 | ||||||||
| Other | 3,513 | 3,488 | 3,586 | ||||||||
| Total | $ | 13,904 | $ | 13,899 | $ | 13,657 | |||||
NOTE 16 - DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes certain derivative financial instruments. Stand-alone derivative financial instruments such as interest rate swaps, are used to economically hedge interest rate risk related to the Company’s liabilities. These derivative instruments involve both credit and market risk. The notional amounts are amounts on which calculations, payments, and the value of the derivative are based. Notional amounts do not represent direct credit exposures. Direct credit exposure is limited to the net difference between the calculated amounts to be received and paid, if any. Such difference, which represents the fair value of the derivative instruments, is reflected on the Company’s consolidated balance sheetsheets in other liabilities.
The Company is exposed to credit related losses in the event of nonperformance by the counterparties to those agreements. The Company controls the credit risk of its financial contracts through credit approvals, limits and monitoring procedures, and does not expect any counterparties to fail their obligations.
The Company entered into interest rate swaps to receive payments at a fixed rate in exchange for paying a floating rate on the debentures discussed in Note 10. Management believes that entering into the interest rate swaps exposed the Company to variability in their fair value due to changes in the level of interest rates. It is the Company’s objective to hedge the change in fair value of floating rate debentures at coverage levels that are appropriate, given anticipated or existing interest rate levels and other market considerations, as well as the relationship of change in this liability to other liabilities of the Company. To meet this objective, the Company utilizes interest rate swaps as an asset/liability management strategy to hedge the change in value of the cash flows due to changes in expected interest rate assumptions.
The Company also entered into interest rate swaps to receive payments at a floating rate in exchange for paying a fixed rate, the objective of which is to reduce the overall cost of short-term 3-month FHLB advances that will be renewed consistent with the reset terms on the interest rate swap and that are included in the amounts discussed in Note 20.
Interest rate swaps with notional amounts totaling $5,000 as of December 31, 20172020 and 2016,2019, were designated as cash flow hedges of the debentures and $40,000 as of December 31, 2020 were designed as cash flow hedges of FHLB advances. All swaps were determined to be fully effective during all periods presented. As such, no0 amount of ineffectiveness has been included in net income.
F-45
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Therefore, the aggregate fair value of the swaps is recorded in accrued interest and other liabilities within the consolidated balance sheets with changes in fair value recorded in other comprehensive income. The amount included in accumulated other comprehensive income would be reclassified to current earnings should the hedges no longer be considered effective. The Company expects the hedges to remain fully effective during the remaining terms of the swaps.
The information pertaining to outstanding interest rate swap agreements used to hedge floating rate debentures and FHLB advances was as follows:follows as of:
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Notional Amount |
|
| Pay Rate |
|
| Receive Rate |
| Effective Date |
| Maturity in Years |
|
| Unrealized Losses |
| ||||
$ | 2,000 |
|
|
| 5.979 | % |
| 3 month LIBOR plus 1.67% |
| 10/1/2016 |
|
| 5.25 |
|
| $ | 408 |
|
$ | 3,000 |
|
|
| 7.505 | % |
| 3 month LIBOR plus 3.35% |
| 10/30/2012 |
|
| 1.83 |
|
| $ | 221 |
|
$ | 15,000 |
|
|
| 0.668 | % |
| 3 month LIBOR |
| 3/18/2020 |
|
| 2.22 |
|
| $ | 159 |
|
$ | 15,000 |
|
|
| 0.790 | % |
| 3 month LIBOR |
| 3/18/2020 |
|
| 4.22 |
|
| $ | 288 |
|
$ | 10,000 |
|
|
| 0.530 | % |
| 3 month LIBOR |
| 3/23/2020 |
|
| 2.23 |
|
| $ | 75 |
|
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Notional Amount |
|
| Pay Rate |
|
| Receive Rate |
| Effective Date |
| Maturity in Years |
|
| Unrealized Losses |
| ||||
$ | 2,000 |
|
|
| 5.979 | % |
| 3 month LIBOR plus 1.67% |
| 10/1/2016 |
|
| 6.25 |
|
| $ | 314 |
|
$ | 3,000 |
|
|
| 7.505 | % |
| 3 month LIBOR plus 3.35% |
| 10/30/2012 |
|
| 2.83 |
|
| $ | 212 |
|
| December 31, 2017 | |||||||||||||||
Notional Amount | Pay Rate | Receive Rate | Effective Date | Maturity in Years | Unrealized Losses | ||||||||||
| $ | 2,000 | 5.979 | % | 3 month LIBOR plus 1.67% | 10/1/2016 | 8.25 | $ | 301 | |||||||
| $ | 3,000 | 7.505 | % | 3 month LIBOR plus 3.35% | 10/30/2012 | 4.83 | $ | 270 | |||||||
| December 31, 2016 | |||||||||||||||
| Notional Amount | Pay Rate | Receive Rate | Effective Date | Maturity in Years | Unrealized Losses | ||||||||||
| $ | 2,000 | 5.979 | % | 3 month LIBOR plus 1.67% | 10/1/2016 | 9.25 | $ | 342 | |||||||
| $ | 3,000 | 7.505 | % | 3 month LIBOR plus 3.35% | 10/30/2012 | 5.83 | $ | 353 | |||||||
Interest expense recorded on these swap transactions totaled $724, $882$747, $648 and $603$687 during the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively, and is reported as a component of interest expense on the debentures. At December 31, 2017,2020, the Company expected noneNaN of the unrealized losses to be reclassified as a reduction of interest expense during the remainder of 2018.
NOTE 17 - COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company enters into various transactions, which, in accordance with accounting principles generally accepted in the United States of America,GAAP, are not included in the consolidated balance sheets. These transactions are referred to as “off-balance sheet commitments.” The Company enters into these transactions to meet the financing needs of its customers. These transactions include commitments to extend credit and letters of credit, which involve elements of credit risk in excess of the amounts recognized in the consolidated balance sheets. The Company minimizes its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures.
The Company enters into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Customers use credit commitments to ensure that funds will be available for working capital purposes, for capital expenditures and to ensure access to funds at specified terms and conditions. Substantially all of the Company’s commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding. Management assessesconsiders the likelihood of commitments and letters of credit to be funded, along with credit related conditions present in the loan agreements when estimating an ACL for off-balance sheet commitments. Loan agreements executed in connection with construction loans and commercial lines of credit have standard conditions which must be met prior to the Company being required to provide additional funding, including conditions precedent that typically include: (i) no event of default or potential default has occurred; (ii) that no material adverse events have taken place that would materially affect the borrower or the value of the collateral, (iii) that the borrower remains in compliance with all loan obligations and covenants and has made no misrepresentations; (iv) that
F-46
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
the collateral has not been damaged or impaired; (v) that the project remains on budget and in compliance with all laws and regulations; and (vi) that all management agreements, lease agreements and franchise agreements that affect the value of the collateral remain in force. If the conditions precedent have not been met, the Company retains the option to cease current draws and/or future funding. As a result of these conditions within our loan agreements, management has determined that credit risk associated with certain commitments to extend credit in determining the levelis minimal and there is 0 recorded ACL as of the allowance for credit losses.
Letters of credit are written conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The Company’s policies generally require that letters of credit arrangements contain security and debt covenants similar to those contained in loan agreements. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Company would be required to fund the commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount shown in the table below. If the commitment were funded, the Company would be entitled to seek recovery from the customer. As of December 31, 20172020 and 2016, no2019, 0 amounts have been recorded as liabilities for the Bank’s potential obligations under these guarantees.
Commitments and letters of credit outstanding were as follows as of December 31:
|
| Contract or Notional Amount |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Commitments to extend credit |
| $ | 324,276 |
|
| $ | 440,685 |
|
Letters of credit |
|
| 8,488 |
|
|
| 9,054 |
|
| Contract or Notional Amount | |||||||
| 2017 | 2016 | ||||||
| Commitments to extend credit | $ | 326,879 | $ | 297,607 | |||
| Letters of credit | 8,336 | 8,879 | |||||
Litigation
The Company is involved in certain claims and lawsuits occurring in the normal course of business. Management, after consultation with legal counsel, does not believe that the outcome of these actions, if determined adversely, would have a material impact on the consolidated financial statements of the Company.
FHLB Letters of Credit
At December 31, 2017
F-47
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in various years through 2023. Minimum future lease payments under these non-cancelable operating leases in excess of one year as of December 31, 2017, are as follows:
| Year Ended December 31, | Amount | ||
| 2018 | $ | 736 | |
| 2019 | 768 | ||
| 2020 | 593 | ||
| 2021 | 421 | ||
| 2022 | 250 | ||
| Thereafter | 2,668 | ||
| $ | 5,436 | ||
NOTE 18 - REGULATORY MATTERS
The Company on a consolidated basis and the Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain off balance sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
The Basel III Capital Rules, a comprehensive capital framework for U.S. banking organizations, became effective for the Company and Bank on January 1, 2015, with certain transition provisions to bethat were fully phased in byon January 1, 2019. Quantitative measures established by the Basel III Capital Rules to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth in the table below) of Common Equity Tier 1 capital, Tier 1 capital and Total capital (as defined in the regulations) to risk-weighted assets (as defined), and and/or Tier 1 capital to adjusted quarterly average assets (as defined). Management believes, as of December 31, 20172020 and December 31, 20162019, that the Bank met all capital adequacy requirements to which it was subject.
The Basel III Capital Rules, among other things, will have (i) introduced a new capital measure called “Common Equity Tier I” (“CETI”CET1”), (ii) specified that Tier I capital consist of CETICET1 and “Additional Tier I Capital” instruments meeting specified requirements, (iii) defined CETICET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CETICET1 and not to the other components of capital and (iv) expanded the scope of the deductions/adjustments as compared to existing regulations.
Starting in January 2016, the implantationimplementation of the capital conservation buffer was effective for the Company starting at the 0.625% level and increasing 0.625% each year thereafter, until it reachesreached 2.5% on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress and effectively increases the minimum required risk-weighted capital ratios.
As of December 31, 20172020 and December 31, 2016,2019, the Company’s capital ratios exceeded those levels necessary to be categorized as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized”, the Company must maintain minimum total risk-based, CETI,CET1, Tier 1 risk-based and Tier I leverage ratios as set forth in the table. There are no conditions or events since December 31, 20172020 that management believes have changed the Company’s category.
The Federal Reserve’s guidelines regarding the capital treatment of trust preferred securities limits restricted core capital elements (including trust preferred securities and qualifying perpetual preferred stock) to 25% of all core capital elements, net of goodwill less any associated deferred tax liability. Because the Company’s aggregate amount of trust preferred securities is less than the limit of 25% of Tier I capital, net of goodwill, the rules permit the inclusion of $10,310 of trust preferred securities in Tier I capital at December 31, 20172020 and 2016.2019. Additionally, the rules provide that trust preferred securities would no longer qualify for Tier I capital within five years of their maturity, but would be included as Tier 2 capital. However, the trust preferred securities would be amortized out of Tier 2 capital by one-fifth each year and excluded from Tier 2 capital completely during the year prior to maturity of the subordinated debentures.
F-48
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
A comparison of the Company’s and Bank’s actual capital amounts and ratios to required capital amounts and ratios is presented in the following table:tables:
|
| Actual |
|
| Minimum Required For Capital Adequacy Purposes |
|
| Minimum Required Under Basel III Fully Phased-In |
|
| To Be Well Capitalized Under Prompt Corrective Action Provisions |
| ||||||||||||||||||||
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
| ||||||||
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk-weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
| $ | 263,144 |
|
| 13.20% |
|
| $ | 159,496 |
|
| 8.00% |
|
| $ | 209,338 |
|
| 10.50% |
|
|
|
|
|
| n/a |
| ||||
Bank |
|
| 285,490 |
|
| 14.32% |
|
|
| 159,514 |
|
| 8.00% |
|
|
| 209,362 |
|
| 10.50% |
|
| $ | 199,392 |
|
| 10.00% |
| ||||
Tier 1 capital to risk-weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
| 238,115 |
|
| 11.94% |
|
|
| 119,622 |
|
| 6.00% |
|
|
| 169,464 |
|
| 8.50% |
|
|
|
|
|
| n/a |
| ||||
Bank |
|
| 260,459 |
|
| 13.06% |
|
|
| 119,635 |
|
| 6.00% |
|
|
| 169,483 |
|
| 8.50% |
|
|
| 159,514 |
|
| 8.00% |
| ||||
Tier 1 capital to average assets:(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
| 238,115 |
|
| 9.13% |
|
|
| 104,293 |
|
| 4.00% |
|
|
| 104,293 |
|
| 4.00% |
|
|
|
|
|
| n/a |
| ||||
Bank |
|
| 260,459 |
|
| 9.99% |
|
|
| 104,293 |
|
| 4.00% |
|
|
| 104,293 |
|
| 4.00% |
|
|
| 130,366 |
|
| 5.00% |
| ||||
Common equity tier 1 capital to risk-weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
| 227,805 |
|
| 11.43% |
|
|
| 89,716 |
|
| 4.50% |
|
|
| 139,559 |
|
| 7.00% |
|
|
|
|
|
| n/a |
| ||||
Bank |
|
| 260,459 |
|
| 13.06% |
|
|
| 89,726 |
|
| 4.50% |
|
|
| 139,574 |
|
| 7.00% |
|
|
| 129,605 |
|
| 6.50% |
| ||||
(1) The Tier 1 capital ratio (to average assets) is not impacted by the Basel III Capital Rules; however, the Federal Reserve and the FDIC may require the Consolidated Company and the Bank, respectively, to maintain a Tier 1 capital ratio (to average assets) above the required minimum. |
| |||||||||||||||||||||||||||||||
|
| Actual |
|
| Minimum Required For Capital Adequacy Purposes |
|
| Minimum Required Under Basel III Fully Phased-In |
|
| To Be Well Capitalized Under Prompt Corrective Action Provisions |
| ||||||||||||||||||||
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
| ||||||||
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk-weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
| $ | 253,793 |
|
| 13.29% |
|
| $ | 152,770 |
|
| 8.00% |
|
| $ | 200,510 |
|
| 10.50% |
|
|
|
|
|
| n/a |
| ||||
Bank |
|
| 249,643 |
|
| 13.07% |
|
|
| 152,774 |
|
| 8.00% |
|
|
| 200,516 |
|
| 10.50% |
|
| $ | 190,968 |
|
| 10.00% |
| ||||
Tier 1 capital to risk-weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
| 237,591 |
|
| 12.44% |
|
|
| 114,577 |
|
| 6.00% |
|
|
| 162,318 |
|
| 8.50% |
|
|
|
|
|
| n/a |
| ||||
Bank |
|
| 233,441 |
|
| 12.22% |
|
|
| 114,581 |
|
| 6.00% |
|
|
| 162,322 |
|
| 8.50% |
|
|
| 152,774 |
|
| 8.00% |
| ||||
Tier 1 capital to average assets:(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
| 237,591 |
|
| 10.29% |
|
|
| 92,318 |
|
| 4.00% |
|
|
| 92,318 |
|
| 4.00% |
|
|
|
|
|
| n/a |
| ||||
Bank |
|
| 233,441 |
|
| 10.11% |
|
|
| 92,321 |
|
| 4.00% |
|
|
| 92,321 |
|
| 4.00% |
|
|
| 115,401 |
|
| 5.00% |
| ||||
Common equity tier 1 capital to risk-weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
| 227,281 |
|
| 11.90% |
|
|
| 85,933 |
|
| 4.50% |
|
|
| 133,674 |
|
| 7.00% |
|
|
|
|
|
| n/a |
| ||||
Bank |
|
| 233,441 |
|
| 12.22% |
|
|
| 85,935 |
|
| 4.50% |
|
|
| 133,677 |
|
| 7.00% |
|
|
| 124,129 |
|
| 6.50% |
| ||||
(1) The Tier 1 capital ratio (to average assets) is not impacted by the Basel III Capital Rules; however, the Federal Reserve and the FDIC may require the Consolidated Company and the Bank, respectively, to maintain a Tier 1 capital ratio (to average assets) above the required minimum. |
| |||||||||||||||||||||||||||||||
| Actual | Minimum Required For Capital Adequacy Purposes | To Be Well Capitalized Under Prompt Corrective Action Provisions | ||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||
| December 31, 2017 | ||||||||||||||||||||
| Total capital to risk-weighted assets: | ||||||||||||||||||||
| Consolidated | $ | 215,720 | 14.13 | % | $ | 122,111 | 8.00 | % | n/a | |||||||||||
| Bank | 206,490 | 13.53 | % | 122,122 | 8.00 | % | $ | 152,652 | 10.00 | % | ||||||||||
| Tier 1 capital to risk-weighted assets: | ||||||||||||||||||||
| Consolidated | 202,861 | 13.29 | % | 91,583 | 6.00 | % | n/a | |||||||||||||
| Bank | 193,631 | 12.68 | % | 91,591 | 6.00 | % | 122,122 | 8.00 | % | |||||||||||
| Tier 1 capital to average assets: | ||||||||||||||||||||
| Consolidated | 202,861 | 10.53 | % | 77,048 | 4.00 | % | n/a | |||||||||||||
| Bank | 193,631 | 10.05 | % | 77,054 | 4.00 | % | 96,318 | 5.00 | % | |||||||||||
| Common equity tier 1 risk-based capital: | ||||||||||||||||||||
| Consolidated | 192,551 | 12.61 | % | 68,687 | 4.50 | % | n/a | |||||||||||||
| Bank | 193,631 | 12.68 | % | 68,694 | 4.50 | % | 99,224 | 6.50 | % | |||||||||||
| Actual | Minimum Required For Capital Adequacy Purposes | To Be Well Capitalized Under Prompt Corrective Action Provisions | ||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||
| December 31, 2016 | ||||||||||||||||||||
| Total capital to risk-weighted assets: | ||||||||||||||||||||
| Consolidated | $ | 149,468 | 10.86 | % | $ | 110,083 | 8.00 | % | n/a | |||||||||||
| Bank | 173,528 | 12.63 | % | 109,947 | 8.00 | % | $ | 137,434 | 10.00 | % | ||||||||||
| Tier 1 capital to risk-weighted assets: | ||||||||||||||||||||
| Consolidated | 137,984 | 10.03 | % | 82,562 | 6.00 | % | n/a | |||||||||||||
| Bank | 162,044 | 11.79 | % | 82,460 | 6.00 | % | 109,947 | 8.00 | % | |||||||||||
| Tier 1 capital to average assets: | ||||||||||||||||||||
| Consolidated | 137,984 | 7.71 | % | 71,560 | 4.00 | % | n/a | |||||||||||||
| Bank | 162,044 | 9.06 | % | 71,505 | 4.00 | % | 89,381 | 5.00 | % | |||||||||||
| Common equity tier 1 risk-based capital: | ||||||||||||||||||||
| Consolidated | 127,674 | 9.28 | % | 61,922 | 4.50 | % | n/a | |||||||||||||
| Bank | 162,044 | 11.79 | % | 61,845 | 4.50 | % | 89,332 | 6.50 | % | |||||||||||
Dividends paid by the Company are mainly provided by dividends from its subsidiaries. However, certain regulatory restrictions exist regarding the ability of its bank subsidiary to transfer funds to Guaranty in the form of cash dividends, loans or advances. The amount of dividends that a subsidiary bank organized aas a national banking association, such as the Bank, may declare in a calendar year is the subsidiary bank’s net profits for that year combined with its retained net profits for the preceding two years. Retained net profits, as defined by the OCC, consist of net income less dividends declared during the period. As of December 31, 2017,2020, the Bank had $10,756$24,854 available for payment of dividends.
F-49
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 19 - CONCENTRATIONS OF CREDIT RISK
Most of the Company’s business activity is with customers located within the state of Texas. Investments in state and municipal securities involve governmental entities within the Company’s market area. The Company also maintains deposits with other financial institutions in amounts that exceed FDIC insurance coverage.
The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.
NOTE 20 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase are secured by mortgage backed securities and collateralized mortgage obligations securities with a market value of $13,029$15,631 as of December 31, 20172020 and collateralized mortgage obligations and agency securities with a market value of $11,033$11,100 as of December 31, 2016,2019, respectively.
Securities sold under agreements to repurchase are financing arrangements that mature within two years. At maturity, the securities underlying the agreements are returned to the Company. Information concerning securities sold under agreements to repurchase is summarized as follows as of December 31:
|
| 2020 |
|
| 2019 |
| ||
Average balance during the year |
| $ | 18,115 |
|
| $ | 10,901 |
|
Average interest rate during the year |
|
| 0.18 | % |
|
| 0.50 | % |
Maximum month-end balance during the year |
| $ | 21,400 |
|
| $ | 11,542 |
|
Weighted average interest rate at year-end |
|
| 0.19 | % |
|
| 0.31 | % |
| 2017 | 2016 | ||||||
| Average balance during the year | $ | 12,769 | $ | 12,475 | |||
| Average interest rate during the year | 0.53 | % | 0.53 | % | |||
| Maximum month-end balance during the year | $ | 14,539 | $ | 14,817 | |||
| Weighted average interest rate at year-end | 0.38 | % | 0.41 | % | |||
NOTE 21 - RELATED PARTIES
As more fully described in Note 4, Note 8 and Note 10, the company has entered into loans, deposits and debenture transactions with related parties. Management believes the transactions entered into with related parties are in the ordinary course of business and are on terms similar to transitions with unaffiliated parties.
NOTE 22 - FAIR VALUE
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:
Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
F-50
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The Company used the following methods and significant assumptions to estimate fair value:
Marketable Securities
: The fair values for marketable securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).Loans Held For Sale:
Derivative Instruments
: The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2).Impaired Loans
:Individually Evaluated Collateral Dependent Loans: For the year ended December 31, 2020, the fair value of individually evaluated collateral dependent loans is generally based on the fair value of collateral, less costs to sell. The fair value of real estate collateral is determined using recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant (Level 3). Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business (Level 3). Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.
Other Real Estate Owned
: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly (Level 3).The following table summarizes quantitative disclosures about the fair value measurements for each category of financial assets (liabilities) carried at fair value as of December 31:
F-51
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
2020 |
| Fair Value |
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Other Unobservable Inputs (Level 3) |
| ||||
Assets (liabilities) at fair value on a recurring basis: |
|
|
|
| �� |
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
| $ | 107,164 |
|
| $ | 0 |
|
| $ | 107,164 |
|
| $ | 0 |
|
Collateralized mortgage obligations |
|
| 66,945 |
|
|
| 0 |
|
|
| 66,945 |
|
|
| 0 |
|
Municipal securities |
|
| 175,704 |
|
|
| 0 |
|
|
| 175,704 |
|
|
| 0 |
|
Corporate bonds |
|
| 30,982 |
|
|
| 0 |
|
|
| 30,982 |
|
|
| 0 |
|
Loans held for sale |
|
| 5,542 |
|
|
| 0 |
|
|
| 0 |
|
|
| 5,542 |
|
Cash surrender value of life insurance |
|
| 35,510 |
|
|
| 0 |
|
|
| 35,510 |
|
|
| 0 |
|
SBA servicing assets |
|
| 763 |
|
|
| 0 |
|
|
| 0 |
|
|
| 763 |
|
Derivative instrument assets |
|
| 629 |
|
|
| 0 |
|
|
| 629 |
|
|
| 0 |
|
Derivative instrument liabilities |
|
| (1,151 | ) |
|
| 0 |
|
|
| (1,151 | ) |
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at fair value on a nonrecurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated collateral dependent loans |
|
| 8,427 |
|
|
| 0 |
|
|
| 0 |
|
|
| 8,427 |
|
2019 |
| Fair Value |
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Other Unobservable Inputs (Level 3) |
| ||||
Assets (liabilities) at fair value on a recurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
| $ | 84,182 |
|
| $ | 0 |
|
| $ | 84,182 |
|
| $ | 0 |
|
Collateralized mortgage obligations |
|
| 90,927 |
|
|
| 0 |
|
|
| 90,927 |
|
|
| 0 |
|
Municipal securities |
|
| 17,348 |
|
|
| 0 |
|
|
| 17,348 |
|
|
| 0 |
|
Corporate bonds |
|
| 20,259 |
|
|
| 0 |
|
|
| 20,259 |
|
|
| 0 |
|
Loans held for sale |
|
| 2,368 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,368 |
|
Cash surrender value of life insurance |
|
| 34,495 |
|
|
| 0 |
|
|
| 34,495 |
|
|
| 0 |
|
SBA servicing assets |
|
| 672 |
|
|
| 0 |
|
|
| 0 |
|
|
| 672 |
|
Derivative instrument assets |
|
| 526 |
|
|
| 0 |
|
|
| 526 |
|
|
| 0 |
|
Derivative instrument liabilities |
|
| (526 | ) |
|
| 0 |
|
|
| (526 | ) |
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at fair value on a nonrecurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
| 20,028 |
|
|
| 0 |
|
|
| 0 |
|
|
| 20,028 |
|
| 2017 | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||||
| Assets (liabilities) at fair value on a recurring basis: | |||||||||||||||
| Available for sale securities | |||||||||||||||
| Mortgage-backed securities | $ | 90,678 | $ | — | $ | 90,678 | $ | — | |||||||
| Collateralized mortgage obligations | 115,311 | — | 115,311 | — | |||||||||||
| Municipal securities | 7,546 | — | 7,546 | — | |||||||||||
| Corporate bonds | 18,837 | — | 18,837 | — | |||||||||||
| Derivative instruments | (571 | ) | — | (571 | ) | — | |||||||||
| Assets at fair value on a nonrecurring basis: | |||||||||||||||
| Impaired loans | 6,206 | — | — | 6,206 | |||||||||||
| Other real estate owned | 2,244 | — | — | 2,244 | |||||||||||
| 2016 | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||||
| Assets (liabilities) at fair value on a recurring basis: | |||||||||||||||
| Available for sale securities | |||||||||||||||
| Mortgage-backed securities | $ | 59,690 | $ | — | $ | 59,690 | $ | — | |||||||
| Collateralized mortgage obligations | 65,133 | — | 65,133 | — | |||||||||||
| Municipal securities | 7,219 | — | 7,219 | — | |||||||||||
| Corporate bonds | 24,883 | — | 24,883 | — | |||||||||||
| Derivative instruments | (695 | ) | — | (695 | ) | — | |||||||||
| Assets at fair value on a nonrecurring basis: | |||||||||||||||
| Impaired loans | 6,065 | — | — | 6,065 | |||||||||||
| Other real estate owned | 1,692 | — | — | 1,692 | |||||||||||
There were no transfers between Level 2 and Level 3 during the yearyears ended December 31, 20172020 or 2016.
Nonfinancial Assets and Nonfinancial Liabilities
:F-52
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
current earnings. The fair value of a foreclosed asset is estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria.
The following table presents foreclosed assets that were remeasured and recorded at fair value as of December 31:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Other real estate owned remeasured at initial recognition: |
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value of other real estate owned prior to remeasurement |
| $ | 42 |
|
| $ | 147 |
|
| $ | 542 |
|
Charge-offs recognized in the allowance for credit losses |
|
| (9 | ) |
|
| (11 | ) |
|
| (25 | ) |
Fair value of other real estate owned remeasured at initial recognition |
| $ | 33 |
|
| $ | 136 |
|
| $ | 517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned remeasured subsequent to initial recognition: |
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value of other real estate owned prior to remeasurement |
| $ | 62 |
|
| $ | 35 |
|
| $ | 599 |
|
Write-downs included in collection and other real estate owned expense |
|
| (1 | ) |
|
| (10 | ) |
|
| (56 | ) |
Fair value of other real estate owned remeasured subsequent to initial recognition |
| $ | 61 |
|
| $ | 25 |
|
| $ | 543 |
|
| 2017 | 2016 | ||||||
| Other real estate owned remeasured at initial recognition: | |||||||
| Carrying value of other real estate owned prior to remeasurement | $ | 1,082 | $ | 78 | |||
| Charge-offs recognized in the allowance for loan losses | (195 | ) | (11 | ) | |||
| Fair value of other real estate owned remeasured at initial recognition | $ | 887 | $ | 67 | |||
| 2017 | 2016 | 2015 | |||||||||
| Other real estate owned remeasured subsequent to initial recognition: | |||||||||||
| Carrying value of other real estate owned prior to remeasurement | $ | — | $ | 170 | $ | 167 | |||||
| Write-downs included in collection and other real estate owned expense | — | (69 | ) | (102 | ) | ||||||
| Fair value of other real estate owned remeasured subsequent to initial recognition | $ | — | $ | 101 | $ | 65 | |||||
The following table presents quantitative information about nonrecurring Level 3 fair value measurements at:
December 31, 2020 |
| Fair Value |
|
| Valuation Technique(s) |
| Unobservable Input(s) |
| Range (Weighted Average) | |
Other real estate owned |
| $ | 404 |
|
| Appraisal value of collateral |
| Selling costs or other normal adjustments |
| 10%-20% (16%) |
The following table presents information on individually evaluated collateral dependent loans as of December 31, 2020:
|
| Fair Value Measurements Using |
|
|
|
|
| |||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total Fair Value |
| ||||
Commercial and industrial |
| $ | — |
|
| $ | — |
|
| $ | 85 |
|
| $ | 85 |
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development |
|
| — |
|
|
| — |
|
|
| 401 |
|
|
| 401 |
|
Commercial real estate |
|
| — |
|
|
| — |
|
|
| 7,941 |
|
|
| 7,941 |
|
Total |
| $ | — |
|
| $ | — |
|
| $ | 8,427 |
|
| $ | 8,427 |
|
December 31, 2019 |
| Fair Value |
|
| Valuation Technique(s) |
| Unobservable Input(s) |
| Range (Weighted Average) | |
Impaired loans |
| $ | 20,028 |
|
| Fair value of collateral - sales comparison approach |
| Selling costs or other normal adjustments: Real estate Equipment |
| 10%-20% (16%) 10%-20% (12%) |
Other real estate owned |
| $ | 603 |
|
| Appraisal value of collateral |
| Selling costs or other normal adjustments |
| 10%-20% (16%) |
F-53
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The following table presents information on individually evaluated collateral dependent loans as of December 31, 2019:
|
| Fair Value Measurements Using |
|
|
|
|
| |||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total Fair Value |
| ||||
Real estate: |
| $ | — |
|
| $ | — |
|
| $ | 53 |
|
| $ | 53 |
|
Farmland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| — |
|
|
| — |
|
|
| 1,198 |
|
|
| 1,198 |
|
Total |
| $ | — |
|
| $ | — |
|
| $ | 1,251 |
|
| $ | 1,251 |
|
| Fair Value | Valuation Technique(s) | Unobservable Input(s) | Range (Weighted Average) | ||||||
| December 31, 2017 | |||||||||
| Impaired loans | $ | 6,206 | Fair value of collateral- sales comparison approach | Selling costs or other normal adjustments: Real estate Equipment | 10%-20% (16%) 10%-20% (3.6%) | ||||
| Other real estate owned | $ | 2,244 | Appraisal value of collateral | Selling costs or other normal adjustments | 10%-20% (16%) | ||||
| Fair Value | Valuation Technique(s) | Unobservable Input(s) | Range (Weighted Average) | ||||||
| December 31, 2016 | |||||||||
| Impaired loans | $ | 6,065 | Fair value of collateral- sales comparison approach | Selling costs or other normal adjustments: Real estate Equipment | 10%-20% (16%) 40%-50% (42%) | ||||
| Other real estate owned | $ | 1,692 | Appraisal value of collateral | Selling costs or other normal adjustments | 10%-20% (16%) | ||||
The carrying amounts and estimated fair values of financial instruments, not previously in this note, at December 31, 20172020 and 20162019 are as follows:
|
| Fair value measurements as of December 31, 2020 using: |
| |||||||||||||||||
|
| Carrying Amount |
|
| Level 1 Inputs |
|
| Level 2 Inputs |
|
| Level 3 Inputs |
|
| Total Fair Value |
| |||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, due from banks, federal funds sold and interest-bearing deposits |
| $ | 351,791 |
|
| $ | 351,791 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 351,791 |
|
Loans, net |
|
| 1,831,737 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,846,868 |
|
|
| 1,846,868 |
|
Accrued interest receivable |
|
| 9,834 |
|
|
| 0 |
|
|
| 9,834 |
|
|
| 0 |
|
|
| 9,834 |
|
Nonmarketable equity securities |
|
| 14,095 |
|
|
| 0 |
|
|
| 14,095 |
|
|
| 0 |
|
|
| 14,095 |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
| $ | 2,286,390 |
|
| $ | 1,907,587 |
|
| $ | 380,570 |
|
| $ | 0 |
|
| $ | 2,288,157 |
|
Securities sold under repurchase agreements |
|
| 15,631 |
|
|
| 0 |
|
|
| 15,631 |
|
|
| 0 |
|
|
| 15,631 |
|
Accrued interest payable |
|
| 804 |
|
|
| 0 |
|
|
| 804 |
|
|
| 0 |
|
|
| 804 |
|
Federal Home Loan Bank advances |
|
| 109,101 |
|
|
| 0 |
|
|
| 109,381 |
|
|
| 0 |
|
|
| 109,381 |
|
Subordinated debentures |
|
| 19,810 |
|
|
| 0 |
|
|
| 17,406 |
|
|
| 0 |
|
|
| 17,406 |
|
|
| Fair value measurements as of December 31, 2019 using: |
| |||||||||||||||||
|
| Carrying Amount |
|
| Level 1 Inputs |
|
| Level 2 Inputs |
|
| Level 3 Inputs |
|
| Total Fair Value |
| |||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, due from banks, federal funds sold and interest-bearing deposits |
| $ | 90,714 |
|
| $ | 90,714 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 90,714 |
|
Marketable securities held to maturity |
|
| 155,458 |
|
|
| 0 |
|
|
| 160,460 |
|
|
| 0 |
|
|
| 160,460 |
|
Loans, net |
|
| 1,690,794 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,705,155 |
|
|
| 1,705,155 |
|
Accrued interest receivable |
|
| 9,151 |
|
|
| 0 |
|
|
| 9,151 |
|
|
| 0 |
|
|
| 9,151 |
|
Nonmarketable equity securities |
|
| 12,301 |
|
|
| 0 |
|
|
| 12,301 |
|
|
| 0 |
|
|
| 12,301 |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
| $ | 1,956,804 |
|
| $ | 1,438,509 |
|
| $ | 520,469 |
|
| $ | 0 |
|
| $ | 1,958,978 |
|
Securities sold under repurchase agreements |
|
| 11,100 |
|
|
| 0 |
|
|
| 11,100 |
|
|
| 0 |
|
|
| 11,100 |
|
Accrued interest payable |
|
| 1,642 |
|
|
| 0 |
|
|
| 1,642 |
|
|
| 0 |
|
|
| 1,642 |
|
Federal Home Loan Bank advances |
|
| 55,118 |
|
|
| 0 |
|
|
| 55,125 |
|
|
| 0 |
|
|
| 55,125 |
|
Subordinated debentures |
|
| 10,810 |
|
|
| 0 |
|
|
| 8,677 |
|
|
| 0 |
|
|
| 8,677 |
|
| Fair Value Measurements at December 31, 2017 Using: | |||||||||||||||||||
| Carrying Amount | Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | Total Fair Value | |||||||||||||||
| Financial assets: | |||||||||||||||||||
| Cash, due from banks, federal funds sold and interest-bearing deposits | $ | 91,428 | $ | 66,657 | $ | 24,771 | $ | — | $ | 91,428 | |||||||||
| Marketable securities held to maturity | 174,684 | — | 176,790 | — | 176,790 | ||||||||||||||
| Loans, net | 1,347,779 | — | — | 1,346,361 | 1,346,361 | ||||||||||||||
| Accrued interest receivable | 8,174 | — | 8,174 | — | 8,174 | ||||||||||||||
| Nonmarketable equity securities | 9,453 | — | 9,453 | — | 9,453 | ||||||||||||||
| Cash surrender value of life insurance | 19,117 | — | 19,117 | — | 19,117 | ||||||||||||||
| Financial liabilities: | |||||||||||||||||||
| Deposits | $ | 1,676,320 | $ | 1,378,467 | $ | 297,978 | $ | — | $ | 1,676,445 | |||||||||
| Securities sold under repurchase agreements | 12,879 | — | 12,879 | — | 12,879 | ||||||||||||||
| Accrued interest payable | 922 | — | 922 | — | 922 | ||||||||||||||
| Other debt | — | — | — | — | — | ||||||||||||||
| Federal Home Loan Bank advances | 45,153 | — | 44,722 | — | 44,722 | ||||||||||||||
| Subordinated debentures | 13,810 | — | 11,495 | — | 11,495 | ||||||||||||||
| Fair Value Measurements at December 31, 2016 Using: | |||||||||||||||||||
| Carrying Amount | Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | Total Fair Value | |||||||||||||||
| Financial assets: | |||||||||||||||||||
| Cash, due from banks, federal funds sold and interest-bearing deposits | $ | 127,543 | $ | 100,205 | $ | 27,338 | $ | — | $ | 127,543 | |||||||||
| Marketable securities held to maturity | 189,371 | — | 186,155 | — | 186,155 | ||||||||||||||
| Loans, net | 1,233,651 | — | — | 1,235,306 | 1,235,306 | ||||||||||||||
| Accrued interest receivable | 7,419 | — | 7,419 | — | 7,419 | ||||||||||||||
| Nonmarketable equity securities | 10,500 | — | 10,500 | — | 10,500 | ||||||||||||||
| Cash surrender value of life insurance | 17,804 | — | 17,804 | — | 17,804 | ||||||||||||||
| Financial liabilities: | |||||||||||||||||||
| Deposits | $ | 1,576,791 | $ | 1,234,875 | $ | 342,615 | $ | — | $ | 1,577,490 | |||||||||
| Securities sold under repurchase agreements | 10,859 | — | 10,859 | — | 10,859 | ||||||||||||||
| Accrued interest payable | 889 | — | 889 | — | 889 | ||||||||||||||
| Other debt | 18,286 | — | 18,286 | — | 18,286 | ||||||||||||||
| Federal Home Loan Bank advances | 55,170 | — | 55,160 | — | 55,160 | ||||||||||||||
| Subordinated debentures | 19,310 | — | 16,809 | — | 16,809 | ||||||||||||||
The methods and assumptions, not previously presented, used to estimate fair values are described as follows:
Cash and Cash Equivalents
F-54
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Loans, net
Cash Surrender Value of Life Insurance
Nonmarketable Equity Securities
Deposits and Securities Sold Under Repurchase Agreements
Other Borrowings
Accrued Interest Receivable/Payable
NOTE 23 - ACCUMULATED OTHER COMPREHENSIVE LOSSINCOME (LOSS)
The following are changes in accumulated other comprehensive income (loss) by component, net of tax, for the year ending December 31, 2020:
|
| Losses on Cash Flow Hedges |
|
| Unrealized (Losses) and Gains on Available for Sale Securities |
|
| Unrealized (Losses) and Gains on Held to Maturity Securities |
|
| Total |
| ||||
Beginning balance |
| $ | (526 | ) |
| $ | (1,221 | ) |
| $ | (46 | ) |
| $ | (1,793 | ) |
Net current period other comprehensive (loss) income |
|
| (625 | ) |
|
| 12,001 |
|
|
| 46 |
|
|
| 11,422 |
|
Ending balance |
| $ | (1,151 | ) |
| $ | 10,780 |
|
| $ | 0 |
|
| $ | 9,629 |
|
There were 0 amounts reclassified out of accumulated other comprehensive income (loss) for the year ended December 31, 2020.
F-55
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The following are changes in accumulated other comprehensive loss by component, net of tax, for the year endingended December 31, 2017:2019:
|
| Losses on Cash Flow Hedges |
|
| Unrealized (Losses) and Gains on Available for Sale Securities |
|
| Unrealized (Losses) and Gains on Held to Maturity Securities |
|
| Total |
| ||||
Beginning balance |
| $ | (393 | ) |
| $ | (8,705 | ) |
| $ | (64 | ) |
| $ | (9,162 | ) |
Other comprehensive income (loss) before reclassification |
|
| (133 | ) |
|
| 7,467 |
|
|
| 18 |
|
|
| 7,352 |
|
Amounts reclassified from accumulated other comprehensive loss |
|
| 0 |
|
|
| 17 |
|
|
| 0 |
|
|
| 17 |
|
Net current period other comprehensive income (loss) |
|
| (133 | ) |
|
| 7,484 |
|
|
| 18 |
|
|
| 7,369 |
|
Ending balance |
| $ | (526 | ) |
| $ | (1,221 | ) |
| $ | (46 | ) |
| $ | (1,793 | ) |
Gains and (Losses) on Cash Flow Hedges | Unrealized Gains and (Losses) on Available for Sale Securities | Unrealized Gains and (Losses) on Held to Maturity Securities | Total | ||||||||||||
| Beginning balance | $ | (695 | ) | $ | (5,319 | ) | $ | (473 | ) | $ | (6,487 | ) | |||
| Other comprehensive income (loss) before reclassification | 124 | (33 | ) | 377 | 468 | ||||||||||
| Amounts reclassified from accumulated other comprehensive loss | — | (108 | ) | — | (108 | ) | |||||||||
| Net current period other comprehensive income (loss) | 124 | (141 | ) | 377 | 360 | ||||||||||
| Ending balance | $ | (571 | ) | $ | (5,460 | ) | $ | (96 | ) | $ | (6,127 | ) | |||
The following are significant amounts reclassified out of each component of accumulated other comprehensive loss for the year endingended December 31, 2017:2019:
Details about Accumulated Other Comprehensive Loss Components |
| Amount Reclassified From Accumulated Other Comprehensive Loss |
|
| Affected Line Item in the Statement Where Net Earnings is Presented | |
Unrealized loss on available for sale securities |
| $ | 22 |
|
| Net realized loss on sale of securities transactions |
|
|
| (5 | ) |
| Tax effect |
|
| $ | 17 |
|
| Net of Tax |
| Details about Accumulated Other Comprehensive Loss Components | Amount Reclassified From Accumulated Other Comprehensive Loss | Affected Line Item in the Statement Where Net Earnings is Presented | ||||
| Unrealized gain on available for sale securities | $ | (167 | ) | Net realized gain on sale of securities transactions | ||
| 59 | Tax benefit | |||||
| $ | (108 | ) | Net of Tax | |||
The following are changes in accumulated other comprehensive loss by component, net of tax, for the year endingended December 31, 2016:2018:
|
| (Losses) and Gains on Cash Flow Hedges |
|
| Unrealized Losses on Available for Sale Securities |
|
| Unrealized (Losses) and Gains on Held to Maturity Securities |
|
| Total |
| ||||
Beginning balance |
| $ | (571 | ) |
| $ | (5,460 | ) |
| $ | (96 | ) |
| $ | (6,127 | ) |
Other comprehensive income (loss) before reclassification |
|
| 178 |
|
|
| (2,799 | ) |
|
| 32 |
|
|
| (2,589 | ) |
Amounts reclassified from accumulated other comprehensive loss |
|
| 0 |
|
|
| 40 |
|
|
| 0 |
|
|
| 40 |
|
Net current period other comprehensive income (loss) |
|
| 178 |
|
|
| (2,759 | ) |
|
| 32 |
|
|
| (2,549 | ) |
Reclassification of certain tax effects from accumulated other comprehensive loss |
|
| 0 |
|
|
| (486 | ) |
|
| 0 |
|
|
| (486 | ) |
Ending balance |
| $ | (393 | ) |
| $ | (8,705 | ) |
| $ | (64 | ) |
| $ | (9,162 | ) |
Gains and (Losses) on Cash Flow Hedges | Unrealized Gains and (Losses) on Available for Sale Securities | Unrealized Gains and (Losses) on Held to Maturity Securities | Total | ||||||||||||
| Beginning balance | $ | (775 | ) | $ | (5,212 | ) | $ | (586 | ) | $ | (6,573 | ) | |||
| Other comprehensive (loss) income before reclassification | 80 | (54 | ) | 113 | 139 | ||||||||||
| Amounts reclassified from accumulated other comprehensive loss | — | (53 | ) | — | (53 | ) | |||||||||
| Net current period other comprehensive (loss) income | 80 | (107 | ) | 113 | 86 | ||||||||||
| Ending balance | $ | (695 | ) | $ | (5,319 | ) | $ | (473 | ) | $ | (6,487 | ) | |||
F-56
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The following are significant amounts reclassified out of each component of accumulated other comprehensive loss for the year endingended December 31, 2016:2018:
Details about Accumulated Other Comprehensive Loss Components |
| Amount Reclassified From Accumulated Other Comprehensive Loss |
|
| Affected Line Item in the Statement Where Net Earnings is Presented | |
Unrealized gain on available for sale securities |
| $ | 50 |
|
| Net realized gain on sale of securities transactions |
|
|
| (10 | ) |
| Tax effect |
|
| $ | 40 |
|
| Net of Tax |
| Details about Accumulated Other Comprehensive Loss Components | Amount Reclassified From Accumulated Other Comprehensive Loss | Affected Line Item in the Statement Where Net Earnings is Presented | ||||
| Unrealized gain on available for sale securities | $ | (82 | ) | Net realized gain on sale of securities transactions | ||
| 29 | Tax benefit | |||||
| $ | (53 | ) | Net of Tax | |||
Gains and (Losses) on Cash Flow Hedges | Unrealized Gains and (Losses) on Available for Sale Securities | Unrealized Gains and (Losses) on Held to Maturity Securities | Total | ||||||||||||
| Beginning balance | $ | (733 | ) | $ | (4,413 | ) | $ | (678 | ) | $ | (5,824 | ) | |||
| Other comprehensive (loss) income before reclassification | (42 | ) | (749 | ) | 92 | (699 | ) | ||||||||
| Amounts reclassified from accumulated other comprehensive loss | — | (50 | ) | — | (50 | ) | |||||||||
| Net current period other comprehensive (loss) income | (42 | ) | (799 | ) | 92 | (749 | ) | ||||||||
| Ending balance | $ | (775 | ) | $ | (5,212 | ) | $ | (586 | ) | $ | (6,573 | ) | |||
| Details about Accumulated Other Comprehensive Loss Components | Amount Reclassified From Accumulated Other Comprehensive Loss | Affected Line Item in the Statement Where Net Earnings is Presented | ||||
| Unrealized gain on available for sale securities | $ | (77 | ) | Net realized gain on sale of securities transactions | ||
| 27 | Tax benefit | |||||
| $ | (50 | ) | Net of Tax | |||
NOTE 24 - EARNINGS PER SHARE
Basic earnings per share is computed by dividing net earnings available to common shareholders by the weighted-average common shares outstanding for the period. Diluted earnings per share reflects the maximum potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and would then share in the net earnings of the Company. Dilutive share equivalents include stock-based awards issued to employees.
Stock options granted by the Company are treated as potential shares in computing earnings per share. Diluted shares outstanding include the dilutive effect of in-the-money awards which is calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount that the employee must pay for exercising stock options, the amount of compensation cost for future service that the Company has not
The computations of basic and diluted earnings per share for the Company were as follows (in thousands except per share amounts) as of December 31:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (basic) |
| $ | 27,402 |
|
| $ | 26,279 |
|
| $ | 20,596 |
|
Net earnings (diluted) |
| $ | 27,402 |
|
| $ | 26,279 |
|
| $ | 20,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding (basic) |
|
| 11,108,564 |
|
|
| 11,638,897 |
|
|
| 11,562,826 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock equivalent shares from stock options |
|
| 32,781 |
|
|
| 66,202 |
|
|
| 90,940 |
|
Weighted-average shares outstanding (diluted) |
|
| 11,141,345 |
|
|
| 11,705,099 |
|
|
| 11,653,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 2.47 |
|
| $ | 2.26 |
|
| $ | 1.78 |
|
Diluted |
| $ | 2.46 |
|
| $ | 2.25 |
|
| $ | 1.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2017 | 2016 | 2015 | |||||||||
| Numerator: | |||||||||||
| Net earnings (basic) | $ | 14,439 | $ | 12,121 | $ | 10,111 | |||||
| Net earnings (diluted) | $ | 14,439 | $ | 12,121 | $ | 10,111 | |||||
| Denominator: | |||||||||||
| Weighted-average shares outstanding (basic) | 10,230,840 | 8,968,262 | 8,796,029 | ||||||||
| Effect of dilutive securities: | |||||||||||
| Common stock equivalent shares from stock options | 82,529 | 8,066 | 5,958 | ||||||||
| Weighted-average shares outstanding (diluted) | 10,313,369 | 8,976,328 | 8,801,987 | ||||||||
| Net earnings per share | |||||||||||
| Basic | $ | 1.41 | $ | 1.35 | $ | 1.15 | |||||
| Diluted | $ | 1.40 | $ | 1.35 | $ | 1.15 | |||||
F-57
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 25 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
Condensed financial information of Guaranty Bancshares, Inc. follows:
|
| 2020 |
|
| 2019 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 1,227 |
|
| $ | 7,264 |
|
Investment in banking subsidiaries |
|
| 305,926 |
|
|
| 268,237 |
|
Other assets |
|
| 451 |
|
|
| 469 |
|
Total assets |
| $ | 307,604 |
|
| $ | 275,970 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
Debt |
| $ | 31,810 |
|
| $ | 11,563 |
|
Accrued expenses and other liabilities |
|
| 3,151 |
|
|
| 2,856 |
|
Shareholders’ equity |
|
| 272,643 |
|
|
| 261,551 |
|
Total liabilities and shareholders’ equity |
| $ | 307,604 |
|
| $ | 275,970 |
|
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Interest income |
| $ | 10 |
|
| $ | 15 |
|
| $ | 13 |
|
Dividends from Guaranty Bank & Trust |
|
| 0 |
|
|
| 23,000 |
|
|
| 10,000 |
|
|
|
| 10 |
|
|
| 23,015 |
|
|
| 10,013 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| 939 |
|
|
| 653 |
|
|
| 687 |
|
Other expenses |
|
| 2,000 |
|
|
| 1,819 |
|
|
| 2,590 |
|
|
|
| 2,939 |
|
|
| 2,472 |
|
|
| 3,277 |
|
Income (loss) before income tax and equity in undistributed income of subsidiary |
|
| (2,929 | ) |
|
| 20,543 |
|
|
| 6,736 |
|
Income tax benefit |
|
| 574 |
|
|
| 639 |
|
|
| 482 |
|
Income (loss) before equity in undistributed earnings of subsidiary |
|
| (2,355 | ) |
|
| 21,182 |
|
|
| 7,218 |
|
Equity in undistributed earnings of subsidiary |
|
| 29,757 |
|
|
| 5,097 |
|
|
| 13,378 |
|
Net earnings |
| $ | 27,402 |
|
| $ | 26,279 |
|
| $ | 20,596 |
|
Comprehensive income |
| $ | 38,824 |
|
| $ | 33,648 |
|
| $ | 18,047 |
|
F-58
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
| $ | 27,402 |
|
| $ | 26,279 |
|
| $ | 20,596 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed subsidiary earnings |
|
| (29,757 | ) |
|
| (5,097 | ) |
|
| (13,378 | ) |
Stock based compensation |
|
| 749 |
|
|
| 663 |
|
|
| 592 |
|
Change in other assets |
|
| 18 |
|
|
| 85 |
|
|
| 127 |
|
Change in other liabilities |
|
| (673 | ) |
|
| 503 |
|
|
| 557 |
|
Net cash (used in) provided by operating activities |
|
| (2,261 | ) |
|
| 22,433 |
|
|
| 8,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid in connection with acquisitions |
|
| 0 |
|
|
| 0 |
|
|
| (6,423 | ) |
Net cash used in investing activities |
|
| 0 |
|
|
| 0 |
|
|
| (6,423 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds of borrowings |
|
| 40,000 |
|
|
| 0 |
|
|
| 0 |
|
Repayments of borrowings |
|
| (19,000 | ) |
|
| (2,000 | ) |
|
| (1,000 | ) |
Purchase of treasury stock |
|
| (16,927 | ) |
|
| (10,140 | ) |
|
| (4,265 | ) |
Exercise of stock options |
|
| 638 |
|
|
| 925 |
|
|
| 327 |
|
Dividends paid |
|
| (8,487 | ) |
|
| (8,065 | ) |
|
| (7,031 | ) |
Net cash used in financing activities |
|
| (3,776 | ) |
|
| (19,280 | ) |
|
| (11,969 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
| (6,037 | ) |
|
| 3,153 |
|
|
| (9,898 | ) |
Beginning cash and cash equivalents |
|
| 7,264 |
|
|
| 4,111 |
|
|
| 14,009 |
|
Ending cash and cash equivalents |
| $ | 1,227 |
|
| $ | 7,264 |
|
| $ | 4,111 |
|
| 2017 | 2016 | ||||||
| ASSETS | |||||||
| Cash and cash equivalents | $ | 14,009 | $ | 1,645 | |||
| Investment in banking subsidiaries | 208,995 | 176,979 | |||||
| Other assets | 511 | 1,781 | |||||
| Total assets | $ | 223,515 | $ | 180,405 | |||
| LIABILITIES AND EQUITY | |||||||
| Debt | $ | 13,810 | $ | 37,596 | |||
| Accrued expenses and other liabilities | 2,360 | 895 | |||||
| KSOP-owned shares | — | 31,661 | |||||
| Shareholders’ equity | 207,345 | 110,253 | |||||
| Total liabilities and shareholders’ equity | $ | 223,515 | $ | 180,405 | |||
| 2017 | 2016 | 2015 | |||||||||
| Interest income | $ | 11 | $ | 19 | $ | 3 | |||||
| Dividends from Guaranty Bank & Trust | — | 12,000 | 20,000 | ||||||||
| 11 | 12,019 | 20,003 | |||||||||
| Expenses | |||||||||||
| Interest expense | 1,024 | 1,417 | 1,045 | ||||||||
| Other expenses | 1,682 | 1,406 | 1,811 | ||||||||
| 2,706 | 2,823 | 2,856 | |||||||||
| (Loss ) income before income tax and equity in undistributed income of subsidiary | (2,695 | ) | 9,196 | 17,147 | |||||||
| Income tax benefit | 354 | 900 | 850 | ||||||||
| Income before equity in undistributed earnings of subsidiary | (2,341 | ) | 10,096 | 17,997 | |||||||
| Equity in undistributed earnings (loss) of subsidiary | 16,780 | 2,025 | (7,886 | ) | |||||||
| Net earnings | $ | 14,439 | $ | 12,121 | $ | 10,111 | |||||
| Comprehensive income | $ | 14,799 | $ | 12,207 | $ | 9,362 | |||||
| 2017 | 2016 | 2015 | |||||||||
| Cash flows from operating activities | |||||||||||
| Net earnings | $ | 14,439 | $ | 12,121 | $ | 10,111 | |||||
| Adjustments: | |||||||||||
| Distributions in excess of (equity in undistributed) subsidiary earnings | (16,780 | ) | (2,025 | ) | 7,886 | ||||||
| Stock based compensation | 355 | 211 | 237 | ||||||||
| Change in other assets | 1,270 | 89 | (646 | ) | |||||||
| Change in other liabilities | 1,589 | (227 | ) | (95 | ) | ||||||
| Net cash provided by operating activities | 873 | 10,169 | 17,493 | ||||||||
| Cash flows from investing activities | |||||||||||
| Acquisition of DCB Financial Corporation | — | — | (7,329 | ) | |||||||
| Acquisition of Texas Leadership Bank of Royce City | — | — | (7,771 | ) | |||||||
| Investment in Guaranty Bank & Trust | (15,000 | ) | — | (4,000 | ) | ||||||
| Net cash used in investing activities | (15,000 | ) | — | (19,100 | ) | ||||||
| Cash flows from financing activities | |||||||||||
| Proceeds of borrowings | 2,000 | 19,000 | 27,000 | ||||||||
| Repayments of borrowings | (25,786 | ) | (20,714 | ) | (13,000 | ) | |||||
| Sale of common stock | 55,755 | — | 7,266 | ||||||||
| Purchase of treasury stock | — | (12,218 | ) | (14,568 | ) | ||||||
| Sale of treasury stock | — | 8,557 | — | ||||||||
| Exercise of stock options | 84 | 36 | — | ||||||||
| Dividends paid | (5,562 | ) | (4,615 | ) | (4,526 | ) | |||||
| Net cash provided by (used in) financing activities | 26,491 | (9,954 | ) | 2,172 | |||||||
| Net change in cash and cash equivalents | 12,364 | 215 | 565 | ||||||||
| Beginning cash and cash equivalents | 1,645 | 1,430 | 865 | ||||||||
| Ending cash and cash equivalents | $ | 14,009 | $ | 1,645 | $ | 1,430 | |||||
F-59