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 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 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 of the Exchange Act.

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the

Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☒

As of ~~August 1,~~November 2, 2022, there were ~~11,907,414~~11,939,572 outstanding shares of the registrant’s common stock, par value $1.00 per share.

During the year ended December 31, 2020, a total allowance for credit losses provision of ~~$13,200~~$13,200 was recorded primarily to account for the estimated impact of COVID-19 on credit quality and resulted largely from changes to individual loan risk ratings, as well as COVID-specific qualitative factors primarily derived from changes in national GDP, Texas unemployment rates and national industry related CRE trends, all of which were impacted by the effects of COVID-19. During 2021, we recorded 0no provision in the first quarter, a ~~$1,000~~$1,000 reverse provision in the second quarter and a ~~$700~~$700 reverse provision in the third quarter. No provision was recorded in the fourth quarter of 2021. These provision reversals captured improvements that occurred to macroeconomic factors evaluated at the onset of the pandemic as part of the aforementioned COVID-specific qualitative factors, as well as risk rating upgrades for specific loans, which impacted the reserve calculations within our model. In the first quarter of 2022, we unwound the remaining COVID-specific qualitative factors and recorded an additional reverse provision of ~~$1,250~~$1,250 to account for significant improvements in COVID-related health statistics and economic impacts. However, growth in our loan portfolio, as well as adjustments to qualitative factors for expected recession forecasts, resulted in a $600 provision during the third quarter of 2022.

The Company uses the weighted-average remaining maturity ("WARM") method as the basis for the estimation of expected credit losses. The WARM method uses a historical average annual charge-off rate containing 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 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 unadjusted historical charge-off rate is then adjusted, using qualitative factors, for current conditions and for reasonable and supportable forecast periods. Qualitative loss factors are based on the Company’s judgment of company, market, industry or business specific data, differences in loan-specific risk characteristics such as underwriting standards, portfolio mix, risk grades, delinquency level, or term. These qualitative factors serve to compensate for additional areas of uncertainty inherent in the portfolio that are not reflected in our historic loss factors. Additionally, we have adjusted for changes in expected environmental and economic conditions, such as changes in unemployment rates, property values, and other relevant factors over the next 12 to 24 months. Management adjusted the historical loss experience for these expectations. No reversion adjustments were necessary, as the starting point for the Company’s estimate was a cumulative loss rate covering the expected contractual term of the portfolio.

The ACL is measured on a collective segment basis when similar risk characteristics exist. Our loan portfolio is segmented first by regulatory call report code, and second, by internally identified risk grades for our commercial loan segments and by delinquency status for our consumer loan segments. We also have separate segments for our warehouse lines of credit, for our internally originated SBA loans, for our SBA loans acquired from Westbound Bank and for SBA-guaranteed PPP loans. Consistent forecasts of the loss drivers are used across the loan segments. For loans that do not share general risk characteristics with segments, we estimate a specific reserve on an individual basis. A reserve is recorded when the carrying amount of the loan exceeds the discounted estimated cash flows using the loan's initial effective interest rate or the fair value of collateral for collateral-dependent loans.

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 closely monitors economic conditions and loan performance trends to manage and evaluate the exposure to credit risk. Key factors tracked by the Company and utilized in evaluating the credit quality of the loan portfolio include trends in delinquency ratios, the level of nonperforming assets, borrower’s repayment capacity, and collateral coverage.

(Continued)

14.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

The following table summarizes the credit exposure in the Company’s loan portfolio, by year of origination, as of ~~June~~September 30, 2022:


June 30, 2022	2022		2021		2020			2019		2018		Prior		Revolving Loans Amortized Cost			Total
September 30, 2022																				2022		2021		2020			2019		2018		Prior		Revolving Loans Amortized Cost			Total
Commercial and industrial:
Pass	$	72,035	$	74,565	$	22,755		$	13,675	$	5,010	$	15,538	$	89,101		$	292,679		$	79,468	$	71,470	$	21,831		$	12,466	$	4,490	$	13,440	$	83,168		$	286,333
Special mention		—		148		—			—		—		—		—			148			—		137		—			378		—		—		950			1,465
Substandard		—		—		258			653		204		30		—			1,145			—		—		252			647		198		63		—			1,160
Nonaccrual		—		32		57			—		—		—		95			184			13		47		11			—		—		—		—			71
Total commercial and industrial loans	$	72,035	$	74,745	$	23,070		$	14,328	$	5,214	$	15,568	$	89,196		$	294,156		$	79,481	$	71,654	$	22,094		$	13,491	$	4,688	$	13,503	$	84,118		$	289,029

Charge-offs	$	—	$	—	$	(30	)	$	—	$	—	$	—	$	(124	)	$	(154	)	$	—	$	—	$	(67	)	$	—	$	—	$	—	$	(125	)	$	(192	)
Recoveries		—		—		—			—		—		33		12			45			—		—		—			—		—		33		29			62
Current period net	$	—	$	—	$	(30	)	$	—	$	—	$	33	$	(112	)	$	(109	)	$	—	$	—	$	(67	)	$	—	$	—	$	33	$	(96	)	$	(130	)

Construction and development:
Pass	$	90,460	$	178,336	$	30,558		$	17,497	$	5,771	$	17,007	$	9,474		$	349,103		$	154,255	$	171,294	$	29,113		$	8,852	$	4,986	$	11,923	$	9,280		$	389,703
Special mention		—		0		0			—		0		920		—			920			—		—		950			—		—		911		—			1,861
Substandard		—		—		0			0		1		—		—			1			—		—		—			—		—		—		—			—
Nonaccrual		—		—		—			—		—		—		—			—			—		—		—			—		—		—		—			—
Total construction and development loans	$	90,460	$	178,336	$	30,558		$	17,497	$	5,772	$	17,927	$	9,474		$	350,024		$	154,255	$	171,294	$	30,063		$	8,852	$	4,986	$	12,834	$	9,280		$	391,564

Charge-offs	$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—		$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—
Recoveries		—		—		—			—		—		—		—			—			—		—		—			—		—		—		—			—
Current period net	$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—		$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—

Commercial real estate:
Pass	$	160,736	$	144,217	$	108,522		$	68,311	$	50,281	$	162,261	$	16,445		$	710,773		$	286,359	$	132,069	$	93,375		$	64,690	$	53,721	$	159,911	$	10,094		$	800,219
Special mention		0		—		950			0		8,841		17,536		—			27,327			—		—		—			—		2,605		4,281		—			6,886
Substandard		—		0		0			0		1,030		3,047		—			4,077			—		—		—			—		1,026		6,456		—			7,482
Nonaccrual		—		0		248			106		63		7,009		—			7,426			—		—		254			104		16		6,980		—			7,354
Total commercial real estate loans	$	160,736	$	144,217	$	109,720		$	68,417	$	60,215	$	189,853	$	16,445		$	749,603		$	286,359	$	132,069	$	93,629		$	64,794	$	57,368	$	177,628	$	10,094		$	821,941

Charge-offs	$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—		$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—
Recoveries		—		—		—			—		1		—		—			1			—		—		—			—		1		—		—			1
Current period net	$	—	$	—	$	—		$	—	$	1	$	—	$	—		$	1		$	—	$	—	$	—		$	—	$	1	$	—	$	—		$	1

(Continued)

15.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)


June 30, 2022	2022		2021		2020		2019		2018		Prior			Revolving Loans Amortized Cost		Total
September 30, 2022																		2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost		Total
Farmland:
Pass	$	65,506	$	57,309	$	11,768	$	7,164	$	6,828	$	12,908		$	4,630	$	166,113	$	83,092	$	54,255	$	11,283	$	6,936	$	6,046	$	12,305	$	5,271	$	179,188
Special mention		—		—		—		—		—		—			—		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		32		—		67			—		99		—		—		—		32		—		65		—		97
Nonaccrual		—		—		—		—		—		97			—		97		—		—		—		—		—		117		—		117
Total farmland loans	$	65,506	$	57,309	$	11,768	$	7,196	$	6,828	$	13,072		$	4,630	$	166,309	$	83,092	$	54,255	$	11,283	$	6,968	$	6,046	$	12,487	$	5,271	$	179,402

Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—		$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Recoveries		—		—		—		—		—		—			—		—		—		—		—		—		—		—		—		—
Current period net	$	—	$	—	$	—	$	—	$	—	$	—		$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

1-4 family residential:
Pass	$	79,199	$	132,508	$	55,175	$	34,883	$	29,142	$	100,769		$	17,572	$	449,248	$	113,548	$	126,656	$	51,155	$	32,313	$	28,004	$	94,089	$	20,530	$	466,295
Special mention		—		—		—		0		22		109			—		131		—		—		—		120		—		34		—		154
Substandard		—		—		—		—		—		—			—		—		—		—		—		—		—		—		—		—
Nonaccrual		—		159		0		—		118		1,273			—		1,550		—		153		—		—		123		1,258		—		1,534
Total 1-4 family residential loans	$	79,199	$	132,667	$	55,175	$	34,883	$	29,282	$	102,151		$	17,572	$	450,929	$	113,548	$	126,809	$	51,155	$	32,433	$	28,127	$	95,381	$	20,530	$	467,983

Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	��	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Recoveries		—		—		—		—		—		30			—		30		—		—		—		—		—		30		—		30
Current period net	$	—	$	—	$	—	$	—	$	—	$	30		$	—	$	30	$	—	$	—	$	—	$	—	$	—	$	30	$	—	$	30

Multi-family residential:
Pass	$	25,629	$	18,566	$	2,511	$	6,334	$	893	$	1,961		$	91	$	55,985	$	14,970	$	18,452	$	2,488	$	4,249	$	886	$	1,889	$	91	$	43,025
Special mention		—		—		—		—		—		—			—		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—			—		—		—		—		—		—		—		—		—		—
Nonaccrual		—		—		—		—		—		0			—		0		—		—		—		—		—		—		—		—
Total multi-family residential loans	$	25,629	$	18,566	$	2,511	$	6,334	$	893	$	1,961		$	91	$	55,985	$	14,970	$	18,452	$	2,488	$	4,249	$	886	$	1,889	$	91	$	43,025

Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—		$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Recoveries		—		—		—		—		—		—			—		—		—		—		—		—		—		—		—		—
Current period net	$	—	$	—	$	—	$	—	$	—	$	—		$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

(Continued)

16.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)


June 30, 2022	2022			2021			2020			2019		2018		Prior		Revolving Loans Amortized Cost			Total
September 30, 2022																						2022			2021			2020			2019			2018		Prior			Revolving Loans Amortized Cost			Total
Consumer and overdrafts:
Pass	$	18,010		$	17,136		$	8,071		$	2,865	$	3,674	$	660	$	6,028		$	56,444		$	25,380		$	14,285		$	6,650		$	2,287		$	3,350	$	572		$	6,531		$	59,055
Special mention		8			32			2			0		—		0		0			42			5			—			9			12			—		—			—			26
Substandard		—			—			—			—		—		—		—			—			—			—			—			—			—		—			—			—
Nonaccrual		—			68			17			8		31		8		250			382			—			81			5			4			27		6			—			123
Total consumer loans and overdrafts	$	18,018		$	17,236		$	8,090		$	2,873	$	3,705	$	668	$	6,278		$	56,868		$	25,385		$	14,366		$	6,664		$	2,303		$	3,377	$	578		$	6,531		$	59,204

Charge-offs	$	(138	)	$	(14	)	$	(22	)	$	—	$	—	$	—	$	—		$	(174	)	$	(241	)	$	(20	)	$	(22	)	$	(20	)	$	—	$	(1	)	$	(250	)	$	(554	)
Recoveries		43			1			—			11		—		11		—			66			66			2			6			11			1		19			—			105
Current period net	$	(95	)	$	(13	)	$	(22	)	$	11	$	—	$	11	$	—		$	(108	)	$	(175	)	$	(18	)	$	(16	)	$	(9	)	$	1	$	18		$	(250	)	$	(449	)

Agricultural:
Pass	$	1,719		$	2,392		$	1,377		$	680	$	665	$	540	$	6,865		$	14,238		$	2,780		$	2,071		$	1,096		$	556		$	433	$	471		$	6,327		$	13,734
Special mention		—			—			—			—		—		6		—			6			—			—			—			—			—		4			—			4
Substandard		—			—			14			3		0		32		—			49			—			—			14			2			—		32			—			48
Nonaccrual		—			—			—			71		6		53		79			209			—			—			—			—			6		53			72			131
Total agricultural loans	$	1,719		$	2,392		$	1,391		$	754	$	671	$	631	$	6,944		$	14,502		$	2,780		$	2,071		$	1,110		$	558		$	439	$	560		$	6,399		$	13,917

Charge-offs	$	—		$	—		$	—		$	—	$	—	$	—	$	—		$	—		$	—		$	—		$	—		$	—		$	—	$	—		$	—		$	—
Recoveries		—			—			—			—		—		—		—			—			—			—			—			—			—		—			—			—
Current period net	$	—		$	—		$	—		$	—	$	—	$	—	$	—		$	—		$	—		$	—		$	—		$	—		$	—	$	—		$	—		$	—

Total loans:
Pass	$	513,294		$	625,029		$	240,737		$	151,409	$	102,264	$	311,644	$	150,206		$	2,094,583		$	759,852		$	590,552		$	216,991		$	132,349		$	101,916	$	294,600		$	141,292		$	2,237,552
Special mention		8			180			952			0		8,863		18,571		0			28,574			5			137			959			510			2,605		5,230			950			10,396
Substandard		—			—			272			688		1,235		3,176		—			5,371			—			—			266			681			1,224		6,616			—			8,787
Nonaccrual		—			259			322			185		218		8,440		424			9,848			13			281			270			108			172		8,414			72			9,330
Total loans	$	513,302		$	625,468		$	242,283		$	152,282	$	112,580	$	341,831	$	150,630		$	2,138,376		$	759,870		$	590,970		$	218,486		$	133,648		$	105,917	$	314,860		$	142,314		$	2,266,065

Charge-offs	$	(138	)	$	(14	)	$	(52	)	$	—	$	—	$	—	$	(124	)	$	(328	)	$	(241	)	$	(20	)	$	(89	)	$	(20	)	$	—	$	(1	)	$	(375	)	$	(746	)
Recoveries		43			1			—			11		1		74		12			142			66			2			6			11			2		82			29			198
Total current period net (charge-offs) recoveries	$	(95	)	$	(13	)	$	(52	)	$	11	$	1	$	74	$	(112	)	$	(186	)	$	(175	)	$	(18	)	$	(83	)	$	(9	)	$	2	$	81		$	(346	)	$	(548	)

(Continued)

17.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

The following table summarizes the credit exposure in the Company’s loan portfolio, by year of origination, as of December 31, 2021:


December 31, 2021	2021		2020		2019			2018			2017			Prior			Revolving Loans Amortized Cost			Total			2021		2020		2019			2018			2017			Prior			Revolving Loans Amortized Cost			Total
Commercial and industrial:
Pass	$	176,972	$	31,337	$	16,207		$	6,449		$	3,493		$	14,657		$	74,364		$	323,479		$	176,972	$	31,337	$	16,207		$	6,449		$	3,493		$	14,657		$	74,364		$	323,479
Special mention		—		88		—			—			14			—			—			102			—		88		—			—			14			—			—			102
Substandard		—		272		55			192			40			1			—			560			—		272		55			192			40			1			—			560
Nonaccrual		14		101		—			22			—			11			—			148			14		101		—			22			—			11			—			148
Total commercial and industrial loans	$	176,986	$	31,798	$	16,262		$	6,663		$	3,547		$	14,669		$	74,364		$	324,289		$	176,986	$	31,798	$	16,262		$	6,663		$	3,547		$	14,669		$	74,364		$	324,289

Charge-offs	$	—	$	—	$	(168	)	$	(67	)	$	(115	)	$	—		$	(61	)	$	(411	)	$	—	$	—	$	(168	)	$	(67	)	$	(115	)	$	—		$	(61	)	$	(411	)
Recoveries		—		—		—			—			—			—			21			21			—		—		—			—			—			—			21			21
Current period net	$	—	$	—	$	(168	)	$	(67	)	$	(115	)	$	—		$	(40	)	$	(390	)	$	—	$	—	$	(168	)	$	(67	)	$	(115	)	$	—		$	(40	)	$	(390	)

Construction and development:
Pass	$	180,056	$	68,765	$	20,499		$	6,507		$	8,235		$	13,565		$	8,615		$	306,242		$	180,056	$	68,765	$	20,499		$	6,507		$	8,235		$	13,565		$	8,615		$	306,242
Special mention		—		—		—			—			944			—			—			944			—		—		—			—			944			—			—			944
Substandard		—		—		609			2			—			—			—			611			—		—		609			2			—			—			—			611
Nonaccrual		—		—		—			—			—			—			—			—			—		—		—			—			—			—			—			—
Total construction and development loans	$	180,056	$	68,765	$	21,108		$	6,509		$	9,179		$	13,565		$	8,615		$	307,797		$	180,056	$	68,765	$	21,108		$	6,509		$	9,179		$	13,565		$	8,615		$	307,797

Charge-offs	$	—	$	—	$	—		$	—		$	—		$	—		$	—		$	—		$	—	$	—	$	—		$	—		$	—		$	—		$	—		$	—
Recoveries		—		—		—			—			—			1			—			1			—		—		—			—			—			1			—			1
Current period net	$	—	$	—	$	—		$	—		$	—		$	1		$	—		$	1		$	—	$	—	$	—		$	—		$	—		$	1		$	—		$	1

Commercial real estate:
Pass	$	134,617	$	93,806	$	80,733		$	59,380		$	43,457		$	145,477		$	16,065		$	573,535		$	134,617	$	93,806	$	80,733		$	59,380		$	43,457		$	145,477		$	16,065		$	573,535
Special mention		—		765		—			—			4,550			788			—			6,103			—		765		—			—			4,550			788			—			6,103
Substandard		—		6,987		0			10,041			12,981			12,553			—			42,562			—		6,987		—			10,041			12,981			12,553			—			42,562
Nonaccrual		—		0		124			69			32			337			80			642			—		—		124			69			32			337			80			642
Total commercial real estate loans	$	134,617	$	101,558	$	80,857		$	69,490		$	61,020		$	159,155		$	16,145		$	622,842		$	134,617	$	101,558	$	80,857		$	69,490		$	61,020		$	159,155		$	16,145		$	622,842

Charge-offs	$	—	$	—	$	(17	)	$	(56	)	$	(472	)	$	(271	)	$	—		$	(816	)	$	—	$	—	$	(17	)	$	(56	)	$	(472	)	$	(271	)	$	—		$	(816	)
Recoveries		—		—		19			—			11			—			—			30			—		—		19			—			11			—			—			30
Current period net	$	—	$	—	$	2		$	(56	)	$	(461	)	$	(271	)	$	—		$	(786	)	$	—	$	—	$	2		$	(56	)	$	(461	)	$	(271	)	$	—		$	(786	)

(Continued)

18.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)


December 31, 2021	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost		Total
Farmland:
Pass	$	94,491	$	11,868	$	8,664	$	7,456	$	5,191	$	11,145	$	6,290	$	145,105
Special mention		—		—		—		—		—		26		—		26
Substandard		—		—		—		—		—		72		—		72
Nonaccrual		—		195		—		—		—		103		—		298
Total farmland loans	$	94,491	$	12,063	$	8,664	$	7,456	$	5,191	$	11,346	$	6,290	$	145,501

Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Recoveries		—		—		—		—		—		—		—		—
Current period net	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

1-4 family residential:
Pass	$	132,448	$	64,590	$	43,016	$	36,501	$	26,987	$	91,864	$	13,714	$	409,120
Special mention		—		—		—		—		—		18		—		18
Substandard		—		—		—		—		—		—		—		—
Nonaccrual		170		—		—		180		58		1,127		—		1,535
Total 1-4 family residential loans	$	132,618	$	64,590	$	43,016	$	36,681	$	27,045	$	93,009	$	13,714	$	410,673

Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Recoveries		—		—		—		—		—		—		—		—
Current period net	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Multi-family residential:
Pass	$	16,663	$	4,286	$	6,436	$	908	$	474	$	2,113	$	91	$	30,971
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Nonaccrual		—		—		—		—		—		—		—		—
Total multi-family residential loans	$	16,663	$	4,286	$	6,436	$	908	$	474	$	2,113	$	91	$	30,971

Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Recoveries		—		—		—		—		—		—		—		—
Current period net	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

(Continued)

19.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)


December 31, 2021	2021			2020			2019			2018			2017			Prior			Revolving Loans Amortized Cost			Total
Consumer and overdrafts:
Pass	$	24,715		$	11,589		$	4,557		$	4,647		$	558		$	543		$	4,478		$	51,087
Special mention		76			—			5			—			—			—			—			81
Substandard		—			—			—			—			—			—			—			—
Nonaccrual		56			27			10			62			5			—			—			160
Total consumer loans and overdrafts	$	24,847		$	11,616		$	4,572		$	4,709		$	563		$	543		$	4,478		$	51,328

Charge-offs	$	(285	)	$	(36	)	$	(57	)	$	(32	)	$	(2	)	$	(2	)	$	—		$	(414	)
Recoveries		61			3			—			8			2			21			—			95
Current period net	$	(224	)	$	(33	)	$	(57	)	$	(24	)	$	—		$	19		$	—		$	(319	)

Agricultural:
Pass	$	3,557		$	1,866		$	927		$	917		$	221		$	526		$	6,492		$	14,506
Special mention		—			—			—			—			13			—			—			13
Substandard		—			14			4			15			39			—			—			72
Nonaccrual		—			—			—			8			—			40			—			48
Total agricultural loans	$	3,557		$	1,880		$	931		$	940		$	273		$	566		$	6,492		$	14,639

Charge-offs	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Recoveries		—			—			—			—			—			8			—			8
Current period net	$	—		$	—		$	—		$	—		$	—		$	8		$	—		$	8

Total loans:
Pass	$	763,519		$	288,107		$	181,039		$	122,765		$	88,616		$	279,890		$	130,109		$	1,854,045
Special mention		76			853			5			—			5,521			832			—			7,287
Substandard		—			7,273			668			10,250			13,060			12,626			—			43,877
Nonaccrual		240			323			134			341			95			1,618			80			2,831
Total loans	$	763,835		$	296,556		$	181,846		$	133,356		$	107,292		$	294,966		$	130,189		$	1,908,040

Charge-offs	$	(285	)	$	(36	)	$	(242	)	$	(155	)	$	(589	)	$	(273	)	$	(61	)	$	(1,641	)
Recoveries		61			3			19			8			13			30			21			155
Total current period net charge-offs	$	(224	)	$	(33	)	$	(223	)	$	(147	)	$	(576	)	$	(243	)	$	(40	)	$	(1,486	)

There were 0no loans classified in the “doubtful” or “loss” risk rating categories as of ~~June~~September 30, 2022 and December 31, 2021.

The following tables presents the amortized cost basis of individually evaluated collateral-dependent loans by class of loan, and their impact on the ACL, as of ~~June 30, 2022 and~~ December 31, ~~2021:~~2021. There were no individually evaluated collateral -dependent loans as of September 30, 2022.

June 30, 2022

Real Estate

Non-RE

Total

Allowance for Credit Losses Allocation

Commercial and industrial

$
718

$
—

$
718

$
246

Real estate:

Commercial real estate

1,030

—

1,030

354

Consumer

0

250

250

250

Total

$
1,748

$
250

$
1,998

$
850


December 31, 2021	Real Estate		Non-RE		Total		Allowance for Credit Losses Allocation
Commercial and industrial	$	116	$	—	$	116	$	40
Real estate:
Construction and development		609		—		609		207
Commercial real estate		4,319		—		4,319		553
Total	$	5,044	$	—	$	5,044	$	800

(Continued)

20.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

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 as of:


June 30, 2022	30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
September 30, 2022															30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
Commercial and industrial	$	1,900	$	97	$	145	$	2,142	$	292,014	$	294,156	$	—	$	121	$	—	$	59	$	180	$	288,849	$	289,029	$	—
Real estate:
Construction and development		94		0		0		94		349,930		350,024		—		196		—		—		196		391,368		391,564		—
Commercial real estate		8		87		6,734		6,829		742,774		749,603		—		—		—		6,761		6,761		815,180		821,941		—
Farmland		20		0		0		20		166,289		166,309		—		19		35		—		54		179,348		179,402		—
1-4 family residential		784		186		411		1,381		449,548		450,929		—		1,537		232		467		2,236		465,747		467,983		—
Multi-family residential		0		0		0		0		55,985		55,985		—		—		—		—		—		43,025		43,025		—
Consumer		60		47		306		413		56,020		56,433		—		337		47		27		411		58,424		58,835		—
Agricultural		71		6		71		148		14,354		14,502		—		2		4		6		12		13,905		13,917		—
Overdrafts		0		0		0		0		435		435		—		—		—		—		—		369		369		—
Total	$	2,937	$	423	$	7,667	$	11,027	$	2,127,349	$	2,138,376	$	—	$	2,212	$	318	$	7,320	$	9,850	$	2,256,215	$	2,266,065	$	—


December 31, 2021	30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing		30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
Commercial and industrial	$	969	$	38	$	134	$	1,141	$	323,148	$	324,289	$	—	$	969	$	38	$	134	$	1,141	$	323,148	$	324,289	$	—
Real estate:
Construction and development		885		132		0		1,017		306,780		307,797		—		885		132		—		1,017		306,780		307,797		—
Commercial real estate		0		360		350		710		622,132		622,842		—		—		360		350		710		622,132		622,842		—
Farmland		114		87		195		396		145,105		145,501		—		114		87		195		396		145,105		145,501		—
1-4 family residential		1,650		123		410		2,183		408,490		410,673		—		1,650		123		410		2,183		408,490		410,673		—
Multi-family residential		0		0		0		0		30,971		30,971		—		—		—		—		—		30,971		30,971		—
Consumer		189		113		68		370		50,595		50,965		—		189		113		68		370		50,595		50,965		—
Agricultural		41		8		0		49		14,590		14,639		—		41		8		—		49		14,590		14,639		—
Overdrafts		0		0		0		0		363		363		—		—		—		—		—		363		363		—
Total	$	3,848	$	861	$	1,157	$	5,866	$	1,902,174	$	1,908,040	$	—	$	3,848	$	861	$	1,157	$	5,866	$	1,902,174	$	1,908,040	$	—

The following table presents information regarding nonaccrual loans as of:


	June 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Commercial and industrial	$	184	$	148	$	71	$	148
Real estate:
Commercial real estate		7,426		642		7,354		642
Farmland		97		298		117		298
1-4 family residential		1,550		1,535		1,534		1,535
Consumer and overdrafts		382		160		123		160
Agricultural		209		48		131		48
Total	$	9,848	$	2,831	$	9,330	$	2,831

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.

There were 0no loans modified as TDRs during the ~~six~~nine months ended ~~June~~September 30, 2022.

(Continued)

21.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

The following table presents loans, by class, modified as TDRs during the year ended December 31, 2021:


Year Ended December 31, 2021	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial and industrial		1		17		14
Total		1	$	17	$	14

There were 4four TDRs that subsequently defaulted during 2022 and remained on nonaccrual status as of ~~June~~September 30, 2022. There were no TDRs that subsequently defaulted during 2021. The TDRs described above did 0tnot increase the allowance for credit losses and resulted in 0no charge-offs during the ~~six~~nine months ended ~~June~~September 30, 2022 or the year ended December 31, 2021.

~~There are no fixed rate advances, with monthly principal and interest payments outstanding as of June 30, 2022.~~

NOTE 13 - 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.

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: Loans held for sale are carried at the lower of cost or fair value, which is evaluated on a pool-level basis. The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan or other observable market data, such as outstanding commitments from third party investors (Level 2).

Derivative Instruments: The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2).

~~(Continued)~~

~~31.~~

~~GUARANTY BANCSHARES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollars in thousands, except per share amounts)~~

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).

Individually Evaluated Collateral Dependent Loans: 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).

~~The following tables summarize quantitative disclosures about the fair value measurements for each category of financial assets (liabilities) carried at fair value:~~

June 30, 2022

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 at fair value on a recurring basis:

Available for sale securities:

Mortgage-backed securities

$
129,184

$
0

$
129,184

$
0

Collateralized mortgage obligations

23,889

0

23,889

0

Municipal securities

9,448

0

9,448

0

Corporate bonds

33,574

0

33,574

0

Loans held for sale

2,770

0

0

2,770

Cash surrender value of life insurance

37,979

0

37,979

0

SBA servicing assets

1,025

0

0

1,025

Assets at fair value on a nonrecurring basis:

Individually evaluated collateral dependent loans

1,148

0

0

1,148

December 31, 2021

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 at fair value on a recurring basis:

Available for sale securities:

Mortgage-backed securities

$
221,308

$
0

$
221,308

$
0

Collateralized mortgage obligations

74,992

0

74,992

0

Corporate bonds

35,935

0

35,935

0

U.S. government agencies

9,971

0

9,971

0

Loans held for sale

4,129

0

0

4,129

Cash surrender value of life insurance

37,141

0

37,141

0

SBA servicing assets

877

0

—

877

Derivative instrument assets

(196
)

0

(196
)

0

Derivative instrument liabilities

8

—

8

—

Assets at fair value on a nonrecurring basis:

Individually evaluated collateral dependent loans

4,244

0

—

4,244

(Continued)

32.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

The following tables summarize quantitative disclosures about the fair value measurements for each category of financial assets (liabilities) carried at fair value:


September 30, 2022	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 at fair value on a recurring basis:
Available for sale securities:
Mortgage-backed securities	$	133,615	$	—	$	133,615	$	—
Collateralized mortgage obligations		21,802		—		21,802		—
Municipal securities		9,417		—		9,417		—
Corporate bonds		33,110		—		33,110		—
Loans held for sale		2,749		—		—		2,749
Cash surrender value of life insurance		38,194		—		38,194		—
SBA servicing assets		899		—		—		899

Assets at fair value on a nonrecurring basis:
Individually evaluated collateral dependent loans		—		—		—		—


December 31, 2021	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 at fair value on a recurring basis:
Available for sale securities:
Mortgage-backed securities	$	221,308		$	—	$	221,308		$	—
Collateralized mortgage obligations		74,992			—		74,992			—
Corporate bonds		35,935			—		35,935			—
U.S. government agencies		9,971			—		9,971			—
Loans held for sale		4,129			—		—			4,129
Cash surrender value of life insurance		37,141			—		37,141			—
SBA servicing assets		877			—		—			877
Derivative instrument assets		(196	)		—		(196	)		—
Derivative instrument liabilities		8			—		8			—

Assets at fair value on a nonrecurring basis:
Individually evaluated collateral dependent loans		4,244			—		—			4,244

There were no transfers between Level 2 and Level 3 during the ~~six~~nine months ended ~~June~~September 30, 2022 or for the year ended December 31, 2021.

Nonfinancial Assets and Nonfinancial Liabilities

Nonfinancial assets measured at fair value on a nonrecurring basis usually include certain foreclosed assets which, upon initial recognition, are remeasured and reported at fair value through a charge-off to the allowance for credit losses and certain foreclosed assets which, subsequent to their initial recognition, are remeasured at fair value through a write-down included in current earnings. The fair value of a foreclosed asset is usually estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria.

As of ~~June~~September 30, 2022 and 2021, and December 31, 2021, there were 0no foreclosed assets that were remeasured and recorded at fair value.

As of ~~June~~September 30, 2022 and December 31, 2021, there were 0no nonrecurring level 3 fair value measurements requiring quantitative information.

~~The following table presents information on individually evaluated collateral dependent loans as of June 30, 2022 and December 31, 2021:~~

Fair Value Measurements Using

June 30, 2022

Level 1

Level 2

Level 3

Total Fair Value

Commercial and industrial

$
—

$
—

$
472

$
472

Real estate:

Construction and development

—

—

0

0

Commercial real estate

—

—

676

676

Total

$
—

$
—

$
1,148

$
1,148

Fair Value Measurements Using

December 31, 2021

Level 1

Level 2

Level 3

Total Fair Value

Commercial and industrial

$
—

$
—

$
76

$
76

Real estate:

Construction and development

—

—

402

402

Commercial real estate

—

—

3,766

3,766

Total

$
—

$
—

$
4,244

$
4,244

~~The carrying amounts and estimated fair values of financial instruments not previously discussed in this note, as of June 30, 2022 and December 31, 2021, are as follows:~~

Fair value measurements as of
June 30, 2022 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

$
71,023

$
71,023

$
0

$
0

$
71,023

Marketable securities held to maturity

713,390

0

682,497

0

682,497

Loans, net

2,107,658

0

0

2,056,757

2,056,757

Accrued interest receivable

10,144

0

10,144

0

10,144

Nonmarketable equity securities

17,753

0

17,753

0

17,753

Financial liabilities:

Deposits

$
2,779,621

$
2,452,997

$
326,237

$
0

$
2,779,234

Securities sold under repurchase agreements

7,871

0

7,871

0

7,871

Accrued interest payable

1,008

0

1,008

0

1,008

Federal Home Loan Bank advances

131,500

0

131,450

0

131,450

Subordinated debt

51,053

0

49,306

0

49,306

(Continued)

33.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

Fair value measurements as of
December 31, 2021 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

$
499,605

$
499,605

$
0

$
0

$
499,605

Marketable securities held to maturity

184,263

0

192,472

0

192,472

Loans, net

1,876,076

0

0

1,883,756

1,883,756

Accrued interest receivable

8,901

0

8,901

0

8,901

Nonmarketable equity securities

15,344

0

15,344

0

15,344

Financial liabilities:

Deposits

$
2,670,827

$
2,341,048

$
330,356

$
0

$
2,671,404

Securities sold under repurchase agreements

14,151

0

14,151

0

14,151

Accrued interest payable

481

0

481

0

481

Federal Home Loan Bank advances

47,500

0

47,501

0

47,501

Subordinated debt

19,810

0

17,833

0

17,833

The following table presents information on individually evaluated collateral dependent loans as of December 31, 2021. There were no individually evaluated collateral dependent loans as of September 30, 2022.


	Fair Value Measurements Using
December 31, 2021	Level 1		Level 2		Level 3		Total Fair Value
Commercial and industrial	$	—	$	—	$	76	$	76
Real estate:
Construction and development		—		—		402		402
Commercial real estate		—		—		3,766		3,766
Total	$	—	$	—	$	4,244	$	4,244

The carrying amounts and estimated fair values of financial instruments not previously discussed in this note, as of September 30, 2022 and December 31, 2021, are as follows:


	Fair value measurements as of September 30, 2022 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	$	124,169	$	124,169	$	—	$	—	$	124,169
Marketable securities held to maturity		633,386		—		595,844		—		595,844
Loans, net		2,234,782		—		—		2,147,119		2,147,119
Accrued interest receivable		10,111		—		10,111		—		10,111
Nonmarketable equity securities		23,529		—		23,529		—		23,529
Financial liabilities:
Deposits	$	2,790,510	$	2,450,301	$	339,007	$	—	$	2,789,308
Securities sold under repurchase agreements		7,592		—		7,592		—		7,592
Accrued interest payable		1,192		—		1,192		—		1,192
Federal Home Loan Bank advances		225,000		—		224,675		—		224,675
Subordinated debt		51,119		—		51,275		—		51,275


	Fair value measurements as of December 31, 2021 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	$	499,605	$	499,605	$	—	$	—	$	499,605
Marketable securities held to maturity		184,263		—		192,472		—		192,472
Loans, net		1,876,076		—		—		1,883,756		1,883,756
Accrued interest receivable		8,901		—		8,901		—		8,901
Nonmarketable equity securities		15,344		—		15,344		—		15,344
Financial liabilities:
Deposits	$	2,670,827	$	2,341,048	$	330,356	$	—	$	2,671,404
Securities sold under repurchase agreements		14,151		—		14,151		—		14,151
Accrued interest payable		481		—		481		—		481
Federal Home Loan Bank advances		47,500		—		47,501		—		47,501
Subordinated debt		19,810		—		17,833		—		17,833

The methods and assumptions, not previously presented, used to estimate fair values are described as follows:

Cash and Cash Equivalents

The carrying amounts of cash and short-term instruments approximate fair values (Level 1).

Loans, net

The fair value of fixed-rate loans and variable-rate loans that reprice on an infrequent basis is estimated by discounting future cash flows using the current interest rates at which similar loans with similar terms would be made to borrowers of similar credit quality (Level 3).

(Continued)

34.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

Nonmarketable Equity Securities

It is not practical to determine the fair value of Independent Bankers Financial Corporation, Federal Home Loan Bank, Federal Reserve Bank and other stock due to restrictions placed on its transferability.

Deposits and Securities Sold Under Repurchase Agreements

The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) (Level 1). The fair values of deposit liabilities with defined maturities are estimated by discounting future cash flows using interest rates currently offered for deposits of similar remaining maturities (Level 2).

Other Borrowings

The fair value of borrowings, consisting of lines of credit, Federal Home Loan Bank advances and subordinated debt is estimated by discounting future cash flows using currently available rates for similar financing (Level 2).

Accrued Interest Receivable/Payable

The carrying amounts of accrued interest approximate their fair values (Level 2).

Off-balance Sheet Instruments

Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments is not material.

NOTE 14 - 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. ~~There were no net earnings~~Net losses attributable to the noncontrolling interest during the quarter and nine months ended ~~June~~September 30, ~~2022.~~2022 were $3 and $21, respectively, and are excluded from this calculation. 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.

~~(Continued)~~

~~34.~~

~~GUARANTY BANCSHARES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollars in thousands, except per share amounts)~~

Stock options granted by the Company are treated as potential shares in computing diluted 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 yet recognized, and the amount of tax impact that would be recorded in additional paid-in capital when the award becomes deductible are assumed to be used to repurchase shares.

The computations of basic and diluted earnings per share for the Company were as follows for the:


	Quarter Ended June 30,				Six Months Ended June 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021		2022		2021		2022		2021
Numerator:
Net earnings attributable to Guaranty Bancshares, Inc.	$	10,784	$	10,432	$	21,522	$	21,394	$	10,903	$	9,253	$	32,425	$	30,647

Denominator:
Weighted-average shares outstanding (basic)		11,968,227		12,056,550		12,038,261		12,047,643		11,907,233		12,067,769		11,994,105		12,054,426
Effect of dilutive securities:
Common stock equivalent shares from stock options		130,756		195,037		135,252		168,311		125,158		143,620		125,344		155,058
Weighted-average shares outstanding (diluted)		12,098,983		12,251,587		12,173,513		12,215,954		12,032,391		12,211,389		12,119,449		12,209,484

Net earnings attributable to Guaranty Bancshares, Inc. per share
Basic	$	0.90	$	0.87	$	1.79	$	1.78	$	0.92	$	0.77	$	2.70	$	2.54
Diluted	$	0.89	$	0.85	$	1.77	$	1.75	$	0.91	$	0.76	$	2.68	$	2.51

(Continued)

35.

Item 2. 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 our condensed consolidated financial statements and notes thereto appearing in Item 1 of Part I of this Quarterly Report on Form 10-Q (this “Report”) and any subsequent Quarterly Reports on Form 10-Q, the risk factors appearing in Item 1A of Part II of this Report, and the other risks and uncertainties listed from time to time in our reports and documents filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2021. Unless the context indicates otherwise, references in this Report to “we,” “our,” “us,” and the “Company” refer to Guaranty Bancshares, Inc., a Texas corporation, and its consolidated subsidiaries. References in this Report to “Guaranty Bank & Trust” and the “Bank” refer to Guaranty Bank & Trust, N.A., a national banking association and our wholly-owned consolidated subsidiary.

General

We were incorporated in 1990 to serve as the holding company for Guaranty Bank & Trust. Since our founding, we have built a reputation based on financial stability and community leadership. In May 2017, we consummated an initial public offering of our common stock, which is traded on the NASDAQ Global Select Market under the symbol “GNTY.”

We currently operate 32 banking locations in the East Texas, Dallas/Fort Worth, Houston and Central Texas regions of the state. Our principal executive office is located at 16475 Dallas Parkway, Suite 600, Addison, Texas, 75001 and our telephone number is (888) 572-9881. Our website address is www.gnty.com. Information contained on our website does not constitute a part of this Report and is not incorporated by reference into this filing or any other report.

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 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.

Quarterly Highlights

Quarterly highlights of the Company include:

•

Strong Loan Growth. The ~~second~~third quarter of 2022 saw strong organic loan growth, increasing ~~$124.3~~$127.7 million, or ~~6.2%~~6.0%, during the quarter. Excluding PPP and warehouse lending changes, our loans ~~grew $139.9~~increased $144.1 million, or ~~7.1%~~6.8%, during the quarter. Our loan growth is a result of internally generated sources and is not from loan purchases from other originators.

•

Solid Net Earnings and Core Earnings. Net earnings have ~~remained consistent quarter-over-quarter.~~trended upward quarter-over-quarter, with net earnings and earnings per share of $10.8 million and $0.90 and $10.9 million and $0.92 in the second and third quarter, respectively. Net core earnings†, which exclude provisions for credit losses and income tax, and net PPP income, have also trended upwards quarter-over-quarter, demonstrating a solid and consistent core earnings stream. Net core earnings† were $13.8 million for the third quarter, compared to $12.8 million for the second quarter ~~compared to $10.9 million for the first quarter~~ of 2022, and ~~$9.8~~$9.7 million during the ~~second~~third quarter of 2021.

(Continued)

36.

•

Good Asset Quality. Non-performing assets as a percentage of total assets were 0.28% at September 30, 2022, compared to 0.30% at June 30, 2022 ~~compared to 0.08%~~and 0.11% at ~~March 31, 2022 and 0.13% at June~~September 30, 2021. Net charge-offs (annualized) to average loans ~~(annualized)~~ were ~~0.02%~~0.07% for the quarter ended ~~June~~September 30, 2022, compared to 0.02% for the quarter ended ~~March 31,~~June 30, 2022, and 0.05% for the quarter ended ~~June~~September 30, 2021. A provision for credit losses of $600,000 was recorded during the third quarter, primarily resulting from loan growth as qualitative factors remained mostly consistent with the second quarter of 2022. We anticipate increases to certain qualitative factor adjustments in the fourth quarter of 2022 to continue incorporating recession forecasts in 2023.

•

Repricing ~~Loans.~~ and Asset Liability Management. The Bank is slightly asset-sensitive and should see benefits from expected rate increases by the Federal ~~Reserve.~~Reserve in November and December of 2022. We continue to be well-positioned for loan funding and liquidity with a loan-to-deposit ratio at quarter-end of 81.2%. Our FHLB advances were $225.0 million as of September 30, 2022 and are expected to be paid down in 2023 from balance sheet cash flows. Approximately $124.4 million in securities will mature or pay down by December 31, 2022 and $217.0 million within 12 months. As of ~~June~~September 30, 2022, ~~$267.8~~$264.5 million, or ~~12.5%,~~11.7% of our loan portfolio is fully floating and ~~$1.1~~$1.2 billion, or ~~51.8%,~~52.8% are adjustable rate term loans, repricing at defined future time ~~periods or at maturity. With the rate increase of 75 bps that occurred during the July FOMC meeting, approximately $322.7 million, or 23.5%, of our floating and variable rate loans repriced. Total~~periods. Additional Fed rate increases ~~of 175 bps between June 30, 2022 and December 31, 2022 would~~will result in the repricing of approximately ~~$453.6~~$354.5 million, or ~~33.0%~~15.7%, of our total ~~floating and adjustable rate~~ loans by December 31, 2022. Although we have raised interest rates paid on deposit accounts, we ~~continue to maintain~~have maintained a conservative approach to ~~increases.~~increases thus far in 2022, but anticipate continued upward trends in deposit betas during 2023. A total of ~~39.8%~~40.9% of our deposits are noninterest-bearing and total cost of funds on total deposits during the ~~second~~third quarter was ~~0.23%~~0.35%.

† Non-GAAP financial metric. Calculations of this metric and reconciliations to GAAP are included in subsequent sections of this MD&A.

Discussion and Analysis of Results of Operations for the ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021

Results of Operations

The following discussion and analysis compares our results of operations for the ~~six~~nine months ended ~~June~~September 30, 2022 with the ~~six~~nine months ended ~~June~~September 30, 2021. The results of operations for the ~~six~~nine months ended ~~June~~September 30, 2022 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2022.

Net earnings attributable to Guaranty Bancshares, Inc. (which excludes the minority interest of consolidated subsidiaries) were ~~$21.5~~$32.4 million for the ~~six~~nine months ended ~~June~~September 30, 2022, as compared to ~~$21.4~~$30.6 million for the ~~six~~nine months ended ~~June~~September 30, 2021. The following table presents key earnings data for the periods indicated:


		Six Months Ended June 30,							Nine Months Ended September 30,
(dollars in thousands, except per share data)		2022			2021				2022			2021
Net earnings attributable to Guaranty Bancshares, Inc.		$	21,522		$	21,394			$	32,425		$	30,647
Net earnings attributable to Guaranty Bancshares, Inc. per common share
-basic			1.79			1.78				2.70			2.54
-diluted			1.77			1.75				2.68			2.51
Net interest margin(1)			3.45	%		3.60	%			3.49	%		3.52	%
Net interest rate spread(2)			3.28	%		3.42	%			3.26	%		3.35	%
Return on average assets			1.37	%		1.51	%			1.34	%		1.42	%
Return on average equity			14.65	%		15.31	%			14.73	%		14.32	%
Average equity to average total assets			9.32	%		9.86	%			9.11	%		9.90	%
Cash dividend payout ratio			24.58	%		22.47	%			24.44	%		23.62	%

(1) Net interest margin is equal to net interest income divided by average interest-earning assets.	(1) Net interest margin is equal to net interest income divided by average interest-earning assets.							(1) Net interest margin is equal to net interest income divided by average interest-earning assets.
(2) Net interest rate spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.	(2) Net interest rate spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.							(2) Net interest rate spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.

Large changes in the provision for credit losses, resulting from effects of COVID-19 and participation in the PPP program, have created temporary extraordinary results in the calculation of net earnings and related performance ~~ratios.~~ratios in comparable prior periods. The following table illustrates net core earnings attributable to Guaranty Bancshares, Inc. and net ~~core earnings attributable to~~

(Continued)

37.

core earnings attributable to Guaranty Bancshares, Inc. per share, which are pre-tax, pre-provision and pre-extraordinary PPP income, as well as net core performance ratios for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021.


	Six Months Ended June 30,							Nine Months Ended September 30,
(dollars in thousands, except per share data)	2022			2021				2022			2021
Net earnings attributable to Guaranty Bancshares, Inc.	$	21,522		$	21,394			$	32,425		$	30,647
Adjustments:
Reversal of provision for credit losses		(1,250	)		(1,000	)			(650	)		(1,700	)
Income tax provision		4,707			4,648				7,070			6,827
PPP interest income, including fees		(1,219	)		(5,260	)			(1,276	)		(6,864	)
Net core earnings attributable to Guaranty Bancshares, Inc.†	$	23,760		$	19,782			$	37,569		$	28,910

Total average assets	$	3,177,969		$	2,857,707			$	3,231,679		$	2,889,882
Adjustments:
PPP loans average balance		(22,794	)		(146,103	)			(15,581	)		(133,309	)
Total average assets, adjusted†	$	3,155,175		$	2,711,604			$	3,216,098		$	2,756,573
Total average equity	$	296,220		$	281,730			$	294,395		$	286,228

PERFORMANCE RATIOS
Net earnings attributable to Guaranty Bancshares, Inc. to average assets (annualized)		1.37	%		1.51	%			1.34	%		1.42	%
Net earnings attributable to Guaranty Bancshares, Inc. to average equity (annualized)	$	14.65		$	15.31			$	14.73		$	14.32
Net core earnings attributable to Guaranty Bancshares, Inc. to average assets, as adjusted (annualized)†		1.52			1.47				1.56			1.40
Net core earnings attributable to Guaranty Bancshares, Inc. to average equity (annualized)†		16.18			14.16				17.06			13.50

PER COMMON SHARE DATA
Weighted-average common shares outstanding, basic		12,038,261			12,047,643				11,994,105			12,054,426
Earnings per common share, basic	$	1.79		$	1.78			$	2.70		$	2.54
Net core earnings attributable to Guaranty Bancshares, Inc. per common share, basic†		1.97			1.64				3.13			2.40

† Non-GAAP financial metric. Calculations of this metric and reconciliations to GAAP are included in "—Non-GAAP Financial Measures".
† Non-GAAP financial metric. Calculations of this metric and reconciliations to GAAP are included in "—Non-GAAP Financial Measures".							† Non-GAAP financial metric. Calculations of this metric and reconciliations to GAAP are included in "—Non-GAAP Financial Measures".

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 reversal of the provision for credit losses, ~~was $51.2 million compared to $48.0 million~~ for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 was $79.5 million and $71.5 million, respectively, an increase of ~~$3.2~~$7.9 million, or ~~6.7%~~11.1%. The increase in net interest income, before the reversal of the provision for credit losses, resulted primarily from a ~~$3.0~~$10.5 million, or ~~69.1%~~13.6%, increase in interest ~~earned~~income, which was partially offset by an increase in interest expense of $2.5 million, or 45.9%. Interest income on ~~securities for~~loans increased $4.7 million, or 6.7%, during the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the same period in 2021. In addition, interest income on securities increased $5.4 million, or 82.1% during the same period.

Average loans outstanding, excluding PPP loans, for the ~~six~~nine months ended ~~June~~September 30, 2022 was ~~$1.98~~$2.05 billion, compared to ~~$1.75~~$1.77 billion for the same period in 2021, an increase of ~~$226.5~~$277.3 million, or ~~12.9%~~15.6%. The increase in average loans outstanding was ~~primarily~~ due to organic growth. The ~~$10,000~~$2.5 million increase in interest expense for the ~~six~~nine months ended ~~June~~September 30, 2022 was primarily related to a ~~$323,000, or 85.9%,~~$1.1 million increase in ~~expense related to our subordinated debentures~~interest on FHLB advances and a ~~$110.4~~$90.5 million, or ~~6.9%~~5.7%, increase in average interest-bearing deposits, along with a five basis point increase in average rate paid on these deposits over the same period in 2021. ~~These were partially offset by a decrease in the cost of interest-bearing deposits of five basis points.~~ The average deposit balance increase is also the result of organic growth, apparent changes in consumer and business spending habits, and lack of stable investment alternatives for some depositors.

For the ~~six~~nine months ended ~~June~~September 30, 2022, net interest margin on a taxable equivalent basis and net interest spread were ~~3.49%~~3.53% and ~~3.28%~~3.26%, respectively, compared to ~~3.64%~~3.56% and ~~3.42%~~3.35% for the same period in 2021, which reflects a 1714 basis point ~~decrease~~increase in the ~~yield on interest-earning assets, partially offset by a three basis point decrease~~rate on interest-bearing liabilities, ~~from~~offset somewhat by a five basis point increase in the ~~prior period. The decrease in~~ yield on interest-earning assets from the prior period. The increase in rate on interest-bearing liabilities from the prior period is ~~primarily due to $5.3 million of PPP-related interest and origination fee income included in the six months ended June 30, 2021 compared to $1.2 million for the six months ended June 30, 2022.~~

(Continued)

38.

primarily due to market rate conditions and increased subordinated debt and FHLB advances during the nine months ended September 30, 2022 compared to the same period of the prior year.

Average Balance Sheet Amounts, Interest Earned and Yield Analysis

The following table presents an analysis of net interest income and net interest spread for the periods indicated, including average outstanding balances for all major categories of interest-earning assets and interest-bearing liabilities, the interest earned or paid on such amounts, and the average rates earned or paid on such assets or liabilities, respectively. The table also sets forth the net interest margin on average total interest-earning assets for the same periods. Interest earned on loans that are classified as nonaccrual is not recognized in income; however, the balances are reflected in average outstanding balances for the period. For the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, the amount of interest income not recognized on nonaccrual loans was not material. Any nonaccrual loans have been included in the table as loans carrying a zero yield.


		Six Months Ended June 30,																	Nine Months Ended September 30,
		2022								2021									2022								2021
(dollars in thousands)		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			Average Outstanding Balance			Interest Earned/ Interest Paid		Average Yield/ Rate
ASSETS
Interest-earning assets:
Total loans(1)		$	2,003,053		$	46,859		4.72	%	$	1,899,864		$	47,059		4.99	%		$	2,066,529		$	74,314		4.81	%	$	1,906,989		$	69,664		4.88	%
Securities available for sale			377,132			3,091		1.65			399,255			4,282		2.16				316,386			4,330		1.83			372,707			5,481		1.97
Securities held to maturity			393,110			4,151		2.13			—			—		—				499,092			7,567		2.03			39,269			1,054		3.59
Nonmarketable equity securities			14,678			698		9.59			10,043			265		5.32				16,937			869		6.86			10,042			612		8.15
Interest-bearing deposits in other banks			203,738			214		0.21			380,455			191		0.10				145,936			409		0.37			391,096			221		0.08
Total interest-earning assets			2,991,711			55,013		3.71			2,689,617			51,797		3.88				3,044,880			87,489		3.84			2,720,103			77,032		3.79
Allowance for credit losses			(29,628	)							(32,951	)								(29,341	)							(32,338	)
Noninterest-earning assets			215,886								201,041									216,140								202,117
Total assets		$	3,177,969							$	2,857,707								$	3,231,679							$	2,889,882
LIABILITIES AND EQUITY
Interest-bearing liabilities:
Interest-bearing deposits		$	1,702,216		$	2,865		0.34	%	$	1,591,784		$	3,096		0.39	%		$	1,684,725		$	5,320		0.42	%	$	1,594,219		$	4,444		0.37	%
Advances from FHLB and fed funds purchased			42,395			236		1.12			50,075			201		0.81				96,462			1,447		2.01			49,581			308		0.83
Line of credit			1,878			34		3.65			8,470			149		3.55				—			34		—			6,506			174		3.58
Subordinated debt			41,572			699		3.39			19,810			376		3.83				46,024			1,208		3.51			19,810			558		3.77
Securities sold under agreements to repurchase			9,976			5		0.10			18,013			7		0.08				8,920			9		0.13			16,044			10		0.08
Total interest-bearing liabilities			1,798,037			3,839		0.43			1,688,152			3,829		0.46				1,836,131			8,018		0.58			1,686,160			5,494		0.44
Noninterest-bearing liabilities:
Noninterest-bearing deposits			1,059,032								862,619									1,075,941								892,260
Accrued interest and other liabilities			24,680								25,206									25,212								25,234
Total noninterest-bearing liabilities			1,083,712								887,825									1,101,153								917,494
Equity			296,220								281,730									294,395								286,228
Total liabilities and equity		$	3,177,969							$	2,857,707								$	3,231,679							$	2,889,882
Net interest rate spread(2)								3.28	%							3.42	%								3.26	%							3.35	%
Net interest income					$	51,174							$	47,968								$	79,471							$	71,538
Net interest margin(3)								3.45	%							3.60	%								3.49	%							3.52	%
Net interest margin, fully taxable equivalent(4)								3.49	%							3.64	%								3.53	%							3.56	%

(1) Includes average outstanding balances of loans held for sale of $2.9 million and $3.7 million for the six months ended June 30, 2022 and 2021, respectively.
(1) Includes average outstanding balances of loans held for sale of $2.6 million and $3.7 million for the nine months ended September 30, 2022 and 2021, respectively.																		(1) Includes average outstanding balances of loans held for sale of $2.6 million and $3.7 million for the nine months ended September 30, 2022 and 2021, respectively.
(2) Net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.	(2) Net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.																	(2) Net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
(3) Net interest margin is equal to net interest income divided by average interest-earning assets, annualized.	(3) Net interest margin is equal to net interest income divided by average interest-earning assets, annualized.																	(3) Net interest margin is equal to net interest income divided by average interest-earning assets, annualized.
(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, annualized, using a marginal tax rate of 21%.	(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, annualized, using a marginal tax rate of 21%.																	(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, annualized, using a marginal tax rate of 21%.

(Continued)

39.

The Bank’s participation in the PPP program created temporary extraordinary results in the calculation of net interest margin. To illustrate the impact of the PPP program on net interest margin, the table below excludes PPP loans and their associated fees and costs for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021:


																					For the Nine Months Ended
		Six Months Ended June 30, 2022									Six Months Ended June 30, 2021										September 30, 2022									September 30, 2021
(dollars in thousands)		Average Outstanding Balance			Interest Earned			Average Yield			Average Outstanding Balance			Interest Earned			Average Yield				Average Outstanding Balance			Interest Earned			Average Yield			Average Outstanding Balance			Interest Earned			Average Yield
Total interest-earning assets		$	2,991,711		$	55,013			3.71	%	$	2,689,617		$	51,797			3.88	%		$	3,044,880		$	87,489			3.84	%	$	2,720,103		$	77,032			3.79	%

Total loans			2,003,053			46,859			4.72			1,899,864			47,059			4.99				2,066,529			74,314			4.81			1,906,989			69,664			4.88
Adjustments:
PPP loans average balance and net fees(1)			(22,794	)		(1,219	)		10.78			(146,103	)		(5,260	)		7.26				(15,581	)		(1,276	)		10.95			(133,309	)		(6,265	)		6.28
Total loans, net of PPP effects		$	1,980,259		$	45,640			4.65	%	$	1,753,761		$	41,799			4.81	%		$	2,050,948		$	73,038			4.76	%	$	1,773,680		$	63,399			4.78	%

Total interest-earning assets, net of PPP effects†		$	2,968,917		$	53,794			3.65	%	$	2,543,514		$	46,537			3.69	%		$	3,029,299		$	86,213			3.81	%	$	2,586,794		$	70,767			3.66	%

Net interest income, fully taxable equivalent ("FTE")					$	51,776								$	23,746									$	80,294								$	72,336
Net interest margin, FTE									3.49	%								3.64	%									3.53	%								3.56	%
Net interest income, net of PPP effects†						50,557									18,236
Net interest income, FTE, net of PPP effects†																									79,018									66,071
Net interest margin, FTE, net of PPP effects†									3.43	%								3.43	%									3.49	%								3.41	%

† Non-GAAP financial metric. Calculations of this and reconciliations to GAAP are included in "—Non-GAAP Financial Measures"	† Non-GAAP financial metric. Calculations of this and reconciliations to GAAP are included in "—Non-GAAP Financial Measures"																			† 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 $110,000 and $720,000, and net origination fees recognized in earnings of $1.1 million and $4.5 million for the six months ended June 30, 2022 and 2021, respectively.
(1) Interest earned consists of interest income of $114,000 and $990,000, and net origination fees recognized in earnings of $1.2 million and $5.3 million for the nine months ended September 30, 2022 and 2021, respectively.																				(1) Interest earned consists of interest income of $114,000 and $990,000, and net origination fees recognized in earnings of $1.2 million and $5.3 million for the nine months ended September 30, 2022 and 2021, respectively.

The following table presents the change in interest income and interest expense for the periods indicated for all major components of interest-earning assets and interest-bearing liabilities and distinguishes between the changes attributable to changes in volume and 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 Six Months Ended June 30, 2022 vs. 2021									For the Nine Months Ended September 30, 2022 vs. 2021
	Increase (Decrease)									Increase (Decrease)
	Due to Change in						Total Increase			Due to Change in						Total Increase
(in thousands)	Volume			Rate			(Decrease)			Volume			Rate			(Decrease)
Interest-earning assets:
Total loans	$	2,575		$	(2,775	)	$	(200	)	$	5,839		$	(1,189	)	$	4,650
Securities available for sale		(237	)		(954	)		(1,191	)		(830	)		(321	)		(1,151	)
Securities held to maturity		4,151			—			4,151			12,347			(5,834	)		6,513
Nonmarketable equity securities		122			311			433			420			(163	)		257
Interest-earning deposits in other banks		(88	)		111			23			(147	)		335			188
Total increase (decrease) in interest income	$	6,523		$	(3,307	)	$	3,216		$	17,629		$	(7,172	)	$	10,457

Interest-bearing liabilities:
Interest-bearing deposits	$	214		$	(445	)	$	(231	)	$	250		$	626		$	876
Advances from FHLB and fed funds purchased		(31	)		66			35			291			848			1,139
Line of credit		(116	)		1			(115	)		(174	)		34			(140	)
Subordinated debt		413			(90	)		323			739			(89	)		650
Securities sold under agreements to repurchase		(3	)		1			(2	)		(4	)		3			(1	)
Total increase (decrease) in interest expense		477			(467	)		10
Total increase in interest expense											1,102			1,422			2,524
Increase (decrease) in net interest income	$	6,046		$	(2,840	)	$	3,206		$	16,527		$	(8,594	)	$	7,933

Provision for Credit Losses

The provision for credit losses is a charge to income in order to bring our allowance for credit losses to a level deemed appropriate by 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.

(Continued)

40.

During the ~~six~~nine months ended ~~June~~September 30, 2022, we recorded a reverse ~~(negative)~~ provision for credit losses of ~~$1.25 million,~~$650,000, compared to a reverse provision of ~~$1.0~~$1.7 million during the same period in 2021. At the onset of the COVID pandemic

~~(Continued)~~

~~40.~~

in 2020, we established COVID-specific qualitative factors to estimate the potential impact of the pandemic to our loan portfolio as a whole, which led to a provision during 2020 of $13.2 million. As the economic, health and other impacts of the virus became more clear and cases began to decline, we reduced the COVID-specific qualitative factors during 2021 and fully unwound these specific factors during the first quarter of 2022, which resulted in ~~the~~a $1.25 million reverse provision during the ~~period.~~first quarter of 2022 and no provision in the second quarter of 2022. The impact of unwinding the remaining COVID-specific qualitative factors was offset by growth in our loan ~~portfolio; however,~~portfolio, and during the third quarter of 2022, we ~~also decreased certain of our standard qualitative factors in~~recorded a $600,000 provision for credit losses to account for the second quarter to capture current macro-economic conditions that we believe are more similar to the environment prior to the COVID-19 pandemic (i.e. near the end of a long up-cycle with a downturn expected) and consistent with our day-one CECL methodology.continued organic loan growth. As of ~~June~~September 30, 2022, our allowance for credit losses as a percentage of total loans was ~~1.36%~~1.29%.

As of ~~June~~September 30, 2022, there were ~~$11.0~~$9.9 million in loan balances past due 30 or more days, including ~~$9.8~~$7.5 million in loan balances for nonperforming (nonaccrual) loans, compared to $5.9 million and $2.8 million, respectively, as of December 31, 2021, and ~~$15.5~~$5.5 million and ~~$3.6~~$3.1 million, respectively, as of ~~June~~September 30, 2021.

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 both mortgage and SBA 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.

The following table presents components of noninterest income for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 and the period-over-period variations in the categories of noninterest income:


	Six Months Ended June 30,				Increase (Decrease)			Nine Months Ended September 30,				Increase (Decrease)
(in thousands)	2022		2021		2022 vs. 2021			2022		2021		2022 vs. 2021
Noninterest income:
Service charges	$	2,046	$	1,684	$	362		$	3,192	$	2,687	$	505
Gain on sale of loans		1,787		2,642		(855	)		2,125		4,401		(2,276	)
Fiduciary and custodial income		1,280		1,119		161			1,856		1,718		138
Bank-owned life insurance income		418		418		—			633		633		—
Merchant and debit card fees		3,672		3,428		244			5,410		5,048		362
Loan processing fee income		419		317		102			611		481		130
Warehouse lending fees		195		452		(257	)		254		648		(394	)
Mortgage fee income		233		334		(101	)		308		479		(171	)
Other noninterest income		2,510		1,695		815			3,974		2,443		1,531
Total noninterest income	$	12,560	$	12,089	$	471		$	18,363	$	18,538	$	(175	)

Total noninterest income ~~increased $471,000,~~decreased $175,000, or ~~3.9%~~0.9%, for the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the same period in 2021. Material changes in the components of noninterest income are discussed below.

Service Charges on Deposit Accounts. We earn fees from our customers for deposit related services, and these fees typically constitute a significant and generally predictable component of our non-interest income. Service fee income was ~~$2.0~~$3.2 million for the ~~six~~nine months ended ~~June~~September 30, 2022 compared to ~~$1.7~~$2.7 million for the same period in 2021, an increase of ~~$362,000,~~$505,000, or ~~21.5%~~18.8%, resulting primarily from an increase in insufficient fund fee income of $505,000, or 23.8%, from $2.1 million for the ~~number of demand deposit accounts from 51,955 as of June~~nine months ended September 30, 2021 to ~~54,147 as of June 30, 2022, an increase of 2,192 accounts, and from an increase in insufficient funds fees of $312,000, from $1.3~~$2.6 million for the ~~six months ended June 30, 2021 to $1.6 million for the six months ended June 30, 2022, due primarily to a reduction in NSF related refunds from the prior period.~~same period of 2022.

Gain on Sale of ~~Loans~~.Loans. We originate long-term fixed-rate mortgage loans and Small Business Administration (SBA) loans for resale into the secondary market. We sold ~~179~~229 mortgage loans for ~~$47.7~~$62.2 million during the ~~six~~nine months ended ~~June~~September 30, 2022 compared to ~~279~~402 mortgage loans for ~~$63.4~~$93.0 million for the quarter ended ~~June~~September 30, 2021. Gain on sale of loans was ~~$1.8~~$2.1 million for the ~~six~~nine months ended ~~June~~September 30, 2022, a decrease of ~~$855,000,~~$2.3 million, or ~~32.4%~~51.7%, compared to ~~$2.6~~$4.4 million for the ~~six~~nine months ended ~~June~~September 30, 2021. ~~$1.4 million and $392,000 of the~~The gain in the current year was attributable to the sales of mortgage loans and SBA 7(a) loans of $1.7 million and $392,000, respectively, while the gain during the prior year consisted of ~~$2.5~~$3.7 million in mortgage loan sales and ~~$165,000~~$706,000 in SBA 7(a) loan sales.

Fiduciary and Custodial Income. We have trust powers and provide fiduciary and custodial services through our trust and wealth management division. Fiduciary income was ~~$1.3~~$1.9 million and ~~$1.1~~$1.7 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively, an increase of ~~$161,000,~~$138,000, or ~~14.4%~~8.0%. The revenue increase resulted primarily from 3343 new accounts that opened during the first ~~six~~nine months of 2022, which have generated additional income. Furthermore, revenue

~~(Continued)~~

~~41.~~

for our services fluctuates by month with the market value for all publicly-traded assets, which are

(Continued)

41.

primarily held in irrevocable trusts and investment management accounts that carry higher fees. Additionally, our custody-only assets are carried in a tiered percentage rate fee schedule charged against market value.

Merchant and Debit Card Fees. We earn interchange income related to the activity of our customers’ merchant debit card usage. Debit card interchange income was ~~$3.7~~$5.4 million for the ~~six~~nine months ended ~~June~~September 30, 2022, compared to ~~$3.4~~$5.0 million for the same period in 2021, an increase of ~~$244,000,~~$362,000, or ~~7.1%~~7.2%. The increase was primarily due to growth in the number of DDAs and debit card usage volume during 2022. The total number of DDAs increased by ~~2,192~~2,216 accounts, from ~~51,955~~52,457 as of ~~June~~September 30, 2021 to ~~54,147~~54,673 as of ~~June~~September 30, 2022.

Loan Processing Fee Income. Revenue earned from collection of loan processing fees was ~~$419,000~~$611,000 for the ~~six~~nine months ended ~~June~~September 30, 2022, compared to ~~$317,000~~$481,000 for the same period in 2021, an increase of ~~$102,000,~~$130,000, or ~~32.2%~~27.0%. The increase in loan processing fee income is primarily attributable to an increase in the volume of newly originated, renewed or extended loans during the period.

Warehouse Lending Fees. A portion of our lending involves the origination of mortgage warehouse lines of credit.
The decrease in warehouse lending fees of ~~$257,000,~~$394,000, or ~~56.9%~~60.8%, results from a decrease in overall warehouse lending activity in 2022. The average balance of mortgage warehouse lines decreased from ~~$78.1~~$71.2 million for the ~~six~~nine months ended ~~June~~September 30, 2021, to ~~$27.9~~$23.7 million for the ~~six~~nine months ended ~~June~~September 30, 2022, a ~~$50.3~~$47.5 million, or ~~64.4%~~66.7%, decrease.

Mortgage Fee Income. Mortgage fee income consists of lender processing fees such as underwriting fees, administrative fees and funding fees that are collected from mortgage loans that the Bank intends to sell on the secondary
market. The decrease of ~~$101,000,~~$171,000, or ~~30.2%~~35.7%, from ~~June~~September 30, 2021 was primarily due to a lower volume of mortgage purchases and refinances during the period in 2022.

Other. This category includes a variety of other income producing activities, including loan origination fees, wire transfer fees, loan administration fees, and other fee income. Other noninterest income increased ~~$815,000,~~$1.5 million, or ~~48.1%~~62.7%, for the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the same period in 2021 resulting primarily from a net gain of $685,000 from the termination of three interest rate swaps during the first quarter of 2022 and a gain on sale of an airplane asset for $894,000 during the third quarter of 2022.

Noninterest 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.

For the ~~six~~nine months ended ~~June~~September 30, 2022, noninterest expense totaled ~~$38.8~~$59.0 million, an increase of ~~$3.8~~$4.7 million, or ~~10.7%~~8.7%, compared to ~~$35.0~~$54.3 million for the ~~six~~nine months ended ~~June~~September 30, 2021. The following table presents, for the periods indicated, the major categories of noninterest expense:


	Six Months Ended June 30,				Increase (Decrease)			Nine Months Ended September 30,				Increase (Decrease)
(in thousands)	2022		2021		2022 vs. 2021			2022		2021		2022 vs. 2021
Employee compensation and benefits	$	23,262	$	20,147	$	3,115		$	35,113	$	31,145	$	3,968
Non-staff expenses:
Occupancy expenses		5,559		5,520		39			8,359		8,258		101
Legal and professional fees		1,543		1,351		192			2,046		1,995		51
Software and technology		2,548		2,169		379			3,957		3,427		530
Amortization		397		679		(282	)		563		932		(369	)
Director and committee fees		424		422		2			637		619		18
Advertising and promotions		727		793		(66	)		1,105		1,288		(183	)
ATM and debit card expense		1,252		1,156		96			1,975		1,802		173
Telecommunication expense		373		414		(41	)		557		611		(54	)
FDIC insurance assessment fees		470		337		133			742		551		191
Other noninterest expense		2,218		2,027		191			3,956		3,674		282
Total noninterest expense	$	38,773	$	35,015	$	3,758		$	59,010	$	54,302	$	4,708

(Continued)

42.

Material changes in the components of noninterest expense are discussed below.

Employee Compensation and ~~Benefits~~.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. Salaries and employee benefits were ~~$23.3~~$35.1 million for the ~~six~~nine months ended ~~June~~September 30, 2022, an increase of ~~$3.1~~$4.0 million, or ~~15.5%~~12.7%, compared to ~~$20.1~~$31.1 million for the same period in 2021. Employee compensation and benefits expense increased due to increased salaries, higher insurance expense accruals due to increased claims experience and increased bonus accruals due to higher net earnings.

~~Legal and Professional Fees.~~ Legal and professional fees, which include audit, loan review and regulatory assessments, were $1.5 million and $1.4 million for the six months ended June 30, 2022 and 2021, respectively, an increase of $192,000, or 14.2%. The increase was primarily the result of more professional recruiting fees paid during the six months ended June 30, 2022 than were paid during the same period of 2021.

Software and Technology. Software and technology expenses increased ~~$379,000,~~$530,000, or ~~17.5%~~15.5%, from ~~$2.2~~$3.4 million for the ~~six~~nine months ended ~~June~~September 30, 2021 to ~~$2.5~~$4.0 million for the ~~six~~nine months ended ~~June~~September 30, 2022. The increase is attributable primarily to new software investments to enhance automation and efficiencies, digital banking initiatives, cybersecurity monitoring and tools, and other technology capabilities.

Amortization. Amortization costs include amortization of software and core deposit intangibles. Amortization costs were ~~$397,000~~$563,000 for the ~~six~~nine months ended ~~June~~September 30, 2022, a decrease of ~~$282,000,~~$369,000, or ~~41.5%~~39.6%, compared to ~~$679,000~~$932,000 for the same period in 2021. The primary reason for the decrease in amortization was due to a decline in amortization expense on core deposit intangibles from ~~$427,000~~$573,000 to ~~$227,000~~$340,000, along with a reduction in software amortization from $358,000 to $223,000 during the ~~six~~nine months ended ~~June~~September 30, 2021 and 2022, respectively.

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 were ~~$1.3~~$2.0 million for the ~~six~~nine months ended ~~June~~September 30, 2022, compared to ~~$1.2~~$1.8 million for the same period in 2021, an increase of ~~$96,000,~~$173,000, or ~~8.3%~~9.6%, as a result of ~~incrased~~increased ATM and debit card usage by our customers.

FDIC Insurance Assessment Fees. FDIC insurance assessment fees were ~~$470,000~~$742,000 for the ~~six~~nine months ended ~~June~~September 30, 2022, compared to ~~$337,000~~$551,000 for the same period in 2021. The increase of ~~$133,000,~~$191,000, or ~~39.5%~~34.7%, was primarily due to an increase in the insurance assessment rate resulting from changes in certain financial ratios used in the calculation and an overall increase in our assessment base, which is calculated as average total assets less average tangible equity.

~~Other~~.Other. This category includes operating and administrative expenses, such as stock option expense, expenses 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 expense increased ~~$191,000,~~$282,000, or ~~9.4%~~7.7%, from ~~$2.0~~$3.7 million for the ~~six~~nine months ended ~~June~~September 30, 2021 to ~~$2.2~~$4.0 million for the ~~six~~nine months ended ~~June~~September 30, 2022 due partially to a $487,000 write-down of an ~~$82,000~~SBA receivable balance during the third quarter of 2022. Additionally, there was also a $102,000 increase in contributions expense and a ~~$43,000~~$66,000 increase in travel and lodging ~~and~~expense compared to the same period in 2021. These increases were partially offset by a ~~$57,000 increase~~$434,000 decrease in ~~meals and entertainment.~~expense related to the termination of FHLB swaps during the third quarter of 2021.

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 ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, income tax expense totaled ~~$4.7~~$7.1 million and ~~$4.6~~$6.8 million, respectively. The increase in income tax expense was primarily due to a increase in net earnings before taxes of ~~$169,000.~~$2.0 million. Our effective tax rates for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 were ~~17.96%~~17.91% and ~~17.85%~~18.22%, respectively.

(Continued)

43.

Discussion and Analysis of Results of Operations for the Three Months Ended ~~June~~September 30, 2022 and 2021

Results of Operations

The following discussion and analysis of our results of operations compares our results of operations for the three months ended ~~June~~September 30, 2022 with the three months ended ~~June~~September 30, 2021. The results of operations for the three months

~~(Continued)~~

~~43.~~

ended ~~June~~September 30, 2022 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2022.

Net earnings attributable to Guaranty Bancshares Inc. were ~~$10.8~~$10.9 million for the three months ended ~~June~~September 30, 2022, as compared to ~~$10.4~~$9.3 million for the three months ended ~~June~~September 30, 2021. Basic earnings attributable to Guaranty Bancshares, Inc. per share were ~~$0.90~~$0.92 for the three months ended ~~June~~September 30, 2022 compared to ~~$0.87~~$0.77 during the same period in 2021.

The following table presents key earnings data for the periods indicated:


		Quarter Ended June 30,							Quarter Ended September 30,
(dollars in thousands, except per share data)		2022			2021				2022			2021
Net earnings attributable to Guaranty Bancshares, Inc.		$	10,784		$	10,432			$	10,903		$	9,253
Net earnings attributable to Guaranty Bancshares, Inc. per common share
-basic			0.90			0.87				0.92			0.77
-diluted			0.89			0.85				0.91			0.76
Net interest margin(1)			3.57	%		3.40	%			3.56	%		3.36	%
Net interest rate spread(2)			3.37	%		3.24	%			3.22	%		3.21	%
Return on average assets			1.35	%		1.42	%			1.30	%		1.24	%
Return on average equity			14.85	%		14.64	%			14.87	%		12.44	%
Average equity to average total assets			9.08	%		9.72	%			8.71	%		9.99	%
Cash dividend payout ratio			24.44	%		22.99	%			23.91	%		25.97	%

(1) Net interest margin is equal to net interest income divided by average interest-earning assets.	(1) Net interest margin is equal to net interest income divided by average interest-earning assets.							(1) Net interest margin is equal to net interest income divided by average interest-earning assets.
(2) Net interest rate spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.	(2) Net interest rate spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.							(2) Net interest rate spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.

The following table illustrates net earnings attributable to Guaranty Bancshares, Inc. and net core earnings attributable to Guaranty Bancshares, Inc. results, which are pre-tax, pre-provision and pre-extraordinary PPP income, as well as performance ratios for the three months ended ~~June~~September 30, 2022 and 2021:


	Quarter Ended June 30,							Quarter Ended September 30,
(dollars in thousands, except per share data)	2022			2021				2022			2021
Net earnings attributable to Guaranty Bancshares, Inc.	$	10,784		$	10,432			$	10,903		$	9,253
Adjustments:
Reversal of provision for credit losses		—			(1,000	)			600			(700	)
Income tax provision		2,472			2,312				2,363			2,179
PPP interest income, including fees		(436	)		(1,954	)			(57	)		(1,005	)
Net core earnings attributable to Guaranty Bancshares, Inc.†	$	12,820		$	9,790			$	13,809		$	9,727

Total average assets	$	3,209,440		$	2,938,944			$	3,337,348		$	2,953,181
Adjustments:
PPP loans average balance		(8,885	)		(155,417	)			(1,159	)		(107,931	)
Total average assets, adjusted†	$	3,200,555		$	2,783,527			$	3,336,189		$	2,845,250
Total average equity	$	291,312		$	285,803			$	290,806		$	295,076

PERFORMANCE RATIOS
Net earnings attributable to Guaranty Bancshares, Inc. to average assets (annualized)		1.35	%		1.42	%			1.30	%		1.24	%
Net earnings attributable to Guaranty Bancshares, Inc. to average equity (annualized)	$	14.85		$	14.64			$	14.87		$	12.44
Net core earnings attributable to Guaranty Bancshares, Inc. to average assets, as adjusted (annualized)†		1.61			1.41				1.64			1.36
Net core earnings attributable to Guaranty Bancshares, Inc. to average equity (annualized)†		17.65			13.74				18.84			13.08

PER COMMON SHARE DATA
Weighted-average common shares outstanding, basic		11,968,227			12,056,550				11,907,233			12,067,769
Earnings per common share, basic	$	0.90		$	0.87			$	0.92		$	0.77
Net core earnings attributable to Guaranty Bancshares, Inc. per common share, basic†		1.07			0.81				1.16			0.81

† Non-GAAP financial metric. Calculations of this metric and reconciliations to GAAP are included in "—Non-GAAP Financial Measures".
† Non-GAAP financial metric. Calculations of this metric and reconciliations to GAAP are included in "—Non-GAAP Financial Measures".							† Non-GAAP financial metric. Calculations of this metric and reconciliations to GAAP are included in "—Non-GAAP Financial Measures".

(Continued)

44.

Net Interest Income

Net interest income, before the provision for credit losses, for the ~~second~~third quarter of 2022 and 2021 was ~~$26.9~~$28.3 million and ~~$23.5~~$23.6 million, respectively, an increase of ~~$3.4~~$4.7 million, or ~~14.4%~~20.1%. The increase in net interest income resulted from an increase in interest income of ~~$3.8~~$7.2 million, or ~~15.2%~~28.7%, which was partially offset by an increase in interest expense

~~(Continued)~~

~~44.~~

of ~~$462,000,~~$2.5 million, or ~~25.6%~~151.0%, quarter over quarter. Interest ~~and fee~~ income ~~from PPP~~on loans ~~decreased $1.5~~increased $4.9 million, or ~~77.7%, while all loan and other interest income increased $3.4 million, or 14.8%~~21.5%, during the current quarter compared to the prior year quarter. In addition, interest income from investment securities and other interest income increased ~~$1.9~~$2.4 million, or ~~88.9%~~90.9%, from the same quarter in the prior year. Interest expense increased primarily due to an increase in interest expense on FHLB advances and fed funds purchased of $1.1 million, or 1031.8%, and an increase in deposit-related interest expense $1.1 million, or 82.1%, primarily due to an increase in rates from 0.33% to 0.59% quarter over quarter.

~~For the three months ended June 30, 2022, net~~Net interest margin, on a taxable equivalent basis, for the ~~second~~third quarter of 2022 and 2021 was ~~3.61%~~3.59% and ~~3.44%~~3.40%, respectively. Net interest margin increased 17 basis points primarily due to a 21 basis point yield increase on total interest-earning assets that was offset by an eight basis point increase in cost of interest-bearing liabilities. The increase in yield on interest-earning assets resulted primarily due to the reinvestment of interest-bearing deposits held at other banks, which earned a yield of 0.06% in the prior year quarter, into higher yielding investment securities and loans. There was a slight decrease in loan yield from 4.79% for the second quarter of 2021 to 4.77% for the second quarter of 2022, a change of two basis points, caused primarily due to PPP origination fee and interest income of $2.0 million recognized during the prior year quarter, compared to $436,000 in the current year quarter. The increase in net interest margin was offset slightly by an increase in the cost of interest-bearing deposits from 0.37% to 0.38% during the same period, a change of one basis point, and an increase in the overall cost of interest-bearing liabilities of eight basis points, from 0.42% in the second quarter of 2021 to 0.50% in the second quarter of 2022.

Average Balance Sheet Amounts, Interest Earned and Yield Analysis

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-bearing liabilities, the interest earned or paid on such amounts, and the average rate earned or paid on such assets or liabilities, respectively.

The table also sets forth the net interest margin on average total interest-earning assets for the same periods. Interest earned on loans that are classified as nonaccrual is not recognized in income; however, the balances are reflected in average outstanding balances for the period. For the three months ended ~~June~~September 30, 2022 and 2021, the amount of ~~interest~~

(Continued)

45.

interest income not recognized on nonaccrual loans was not material. Any nonaccrual loans have been included in the table as loans carrying a zero yield.


		Quarter Ended June 30,																	Quarter Ended September 30,
		2022								2021									2022								2021
(dollars in thousands)		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			Average Outstanding Balance			Interest Earned/ Interest Paid		Average Yield/ Rate
ASSETS
Interest-earning assets:
Total loans(1)		$	2,068,379		$	24,587		4.77	%	$	1,912,722		$	22,864		4.79	%		$	2,191,411		$	27,455		4.97	%	$	1,921,005		$	22,605		4.67	%
Securities available for sale			267,823			1,473		2.21			420,202			2,191		2.09				196,875			1,239		2.50			320,476			1,199		1.48
Securities held to maturity			596,013			2,666		1.79			—			—		—				707,601			3,416		1.92			116,527			1,054		3.59
Nonmarketable equity securities			14,128			289		8.20			10,056			164		6.54				21,382			172		3.19			10,040			268		10.59
Interest-bearing deposits in other banks			74,047			105		0.57			426,074			65		0.06				32,233			194		2.39			412,033			109		0.10
Total interest-earning assets			3,020,390			29,120		3.87			2,769,054			25,284		3.66				3,149,502			32,476		4.09			2,780,081			25,235		3.60
Allowance for credit losses			(29,056	)							(32,664	)								(28,777	)							(31,133	)
Noninterest-earning assets			218,106								202,554									216,623								204,233
Total assets		$	3,209,440							$	2,938,944								$	3,337,348							$	2,953,181
LIABILITIES AND EQUITY
Interest-bearing liabilities:
Interest-bearing deposits		$	1,694,363		$	1,623		0.38	%	$	1,623,351		$	1,493		0.37	%		$	1,650,314		$	2,455		0.59	%	$	1,599,012		$	1,348		0.33	%
Advances from FHLB and fed funds purchased			47,016			190		1.62			49,063			102		0.83				202,832			1,211		2.37			48,609			107		0.87
Line of credit			—			—		—			2,374			21		3.55				—			—		—			2,641			25		3.76
Subordinated debt			52,326			453		3.47			19,810			188		3.81				51,087			509		3.95			19,810			182		3.64
Securities sold under agreements to repurchase			9,045			3		0.13			14,887			3		0.08				6,844			4		0.23			12,171			3		0.10
Total interest-bearing liabilities			1,802,750			2,269		0.50			1,709,485			1,807		0.42				1,911,077			4,179		0.87			1,682,243			1,665		0.39
Noninterest-bearing liabilities:
Noninterest-bearing deposits			1,090,288								916,631									1,109,205								950,574
Accrued interest and other liabilities			25,090								27,025									26,260								25,288
Total noninterest-bearing liabilities			1,115,378								943,656									1,135,465								975,862
Equity			291,312								285,803									290,806								295,076
Total liabilities and equity		$	3,209,440							$	2,938,944								$	3,337,348							$	2,953,181
Net interest rate spread(2)								3.37	%							3.24	%								3.22	%							3.21	%
Net interest income					$	26,851							$	23,477								$	28,297							$	23,570
Net interest margin(3)								3.57	%							3.40	%								3.56	%							3.36	%
Net interest margin, fully taxable equivalent(4)								3.61	%							3.44	%								3.59	%							3.40	%

(1) Includes average outstanding balances of loans held for sale of $2.6 million and $3.2 million for the quarter ended June 30, 2022 and 2021, respectively.
(1) Includes average outstanding balances of loans held for sale of $2.1 million and $3.7 million for the quarter ended September 30, 2022 and 2021, respectively.																		(1) Includes average outstanding balances of loans held for sale of $2.1 million and $3.7 million for the quarter ended September 30, 2022 and 2021, respectively.
(2) Net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.	(2) Net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.																	(2) Net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
(3) Net interest margin is equal to net interest income divided by average interest-earning assets, annualized.	(3) Net interest margin is equal to net interest income divided by average interest-earning assets, annualized.																	(3) Net interest margin is equal to net interest income divided by average interest-earning assets, annualized.
(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, annualized, using a marginal tax rate of 21%.	(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, annualized, using a marginal tax rate of 21%.																	(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, annualized, using a marginal tax rate of 21%.

(Continued)

46.

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 for the three months ended ~~June~~September 30, 2022:


		Quarter Ended June 30, 2022										Quarter Ended September 30, 2022
(dollars in thousands)		Average Outstanding Balance			Interest Earned/ Interest Paid			Average Yield/ Rate				Average Outstanding Balance			Interest Earned/ Interest Paid			Average Yield/ Rate
Total interest-earning assets		$	3,020,390		$	29,120			3.87	%		$	3,149,502		$	32,476			4.09	%

Total loans			2,068,379			24,587			4.77				2,191,411			27,455			4.97
Adjustments:
PPP loans average balance and net fees(1)			(8,885	)		(436	)		19.68				(1,159	)		(57	)		19.51
Total loans, net of PPP effects		$	2,059,494		$	24,151			4.70	%		$	2,190,252		$	27,398			4.96	%

Total interest-earning assets, net of PPP effects†		$	3,011,505		$	28,684			3.82	%		$	3,148,343		$	32,419			4.09	%


Net interest income, fully taxable equivalent ("FTE")					$	27,150									$	28,512
Net interest margin, FTE									3.61	%									3.59	%
Net interest income, net of PPP effects†						26,714										28,455
Net interest margin, FTE, net of PPP effects†									3.56	%									3.59	%

† Non-GAAP financial metric. Calculations of this and reconciliations to GAAP are included in "—Non-GAAP Financial Measures"	† Non-GAAP financial metric. Calculations of this and reconciliations to GAAP are included in "—Non-GAAP Financial Measures"										† 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 $21,000 and net origination fees recognized in earnings of $415,000 for the quarter ended June 30, 2022.
(1) Interest earned consists of interest income of $4,000 and net origination fees recognized in earnings of $53,000 for the quarter ended September 30, 2022.											(1) Interest earned consists of interest income of $4,000 and net origination fees recognized in earnings of $53,000 for the quarter ended September 30, 2022.

The following table presents the change 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 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 Quarter Ended June 30, 2022 vs. 2021									For the Quarter Ended September 30, 2022 vs. 2021
	Increase (Decrease)									Increase (Decrease)
	Due to Change in						Total Increase			Due to Change in						Total Increase
(in thousands)	Volume			Rate			(Decrease)			Volume			Rate			(Decrease)
Interest-earning assets:
Total loans	$	3,728		$	(2,005	)	$	1,723		$	9,471		$	(4,621	)	$	4,850
Securities available for sale		(794	)		76			(718	)		(461	)		501			40
Securities held to maturity		2,666			—			2,666			5,349			(2,987	)		2,362
Nonmarketable equity securities		66			59			125			303			(399	)		(96	)
Interest-earning deposits in other banks		(53	)		93			40			(96	)		181			85
Total increase (decrease) in interest income	$	5,613		$	(1,777	)	$	3,836		$	14,566		$	(7,325	)	$	7,241

Interest-bearing liabilities:
Interest-bearing deposits	$	66		$	64		$	130		$	43		$	1,064		$	1,107
Advances from FHLB and fed funds purchased		(4	)		92			88			338			766			1,104
Line of credit		(21	)		—			(21	)		(25	)		—			(25	)
Subordinated debt		309			(44	)		265			287			40			327
Securities sold under agreements to repurchase		(1	)		1			—			(1	)		2			1
Total increase in interest expense		349			113			462			642			1,872			2,514
Increase (decrease) in net interest income	$	5,264		$	(1,890	)	$	3,374		$	13,924		$	(9,197	)	$	4,727

Provision for Credit Losses

During the ~~second~~third quarter of 2022, we recorded noa $600,000 provision for credit losses compared to a reverse ~~(negative)~~ provision ~~expense~~ of ~~$1.0 million~~$700,000 for the three months ended ~~June~~September 30, 2021. AtThe provision was recorded primarily due to continued organic loan growth during the quarter. During the first quarter of 2022, we fully unwound the COVID-specific qualitative factor that we implemented at the onset of the ~~COVID~~ pandemic in early 2020 we established COVID-specific qualitative factors to estimate the potential impact of the pandemic to our loan portfolio as a whole, which led to a provision during 2020 of $13.2 million. As the economic, health and other impacts of the virus became more clear and cases began to decline, we reduced the COVID-specific qualitative factors during 2021 and fully unwound these specific factors during the first quarter of 2022. The impact of unwinding the remaining COVID-specific qualitative factors was offset by growth in our loan portfolio, however, we also decreased certain ofadjusted our standard qualitative factors in the second quarter of 2022 to capture ~~current~~ macro-economic conditions that we ~~believe are~~believed were more similar to the environment prior to the COVID-19 pandemic (i.e. near the end of a long up-cycle with a downturn expected) and consistent with our day-one CECL methodology. Minimal updates were made to our qualitative factors, including forecasted conditions, during the third quarter of 2022, however increases to certain qualitative factors are anticipated in future periods to estimate possible impacts of an

(Continued)

47.

~~with~~economic recession on our ~~day-one CECL methodology.~~loan portfolio. As of ~~June~~September 30, 2022, our allowance for credit losses as a percentage of total loans was ~~1.36%~~1.29%.

Noninterest Income

The following table presents components of noninterest income for the three months ended ~~June~~September 30, 2022 and 2021 and the period-over-period variations in the categories of noninterest income:


	Quarter Ended June 30,				Increase (Decrease)			Quarter Ended September 30,				Increase (Decrease)
(in thousands)	2022		2021		2022 vs. 2021			2022		2021		2022 vs. 2021
Noninterest income:
Service charges	$	1,070	$	855	$	215		$	1,146	$	1,003	$	143
Gain on sale of loans		882		1,244		(362	)		338		1,759		(1,421	)
Fiduciary and custodial income		638		570		68			576		599		(23	)
Bank-owned life insurance income		207		206		1			215		215		—
Merchant and debit card fees		2,061		1,922		139			1,738		1,620		118
Loan processing fee income		232		164		68			192		164		28
Warehouse lending fees		79		211		(132	)		59		196		(137	)
Mortgage fee income		102		157		(55	)		75		145		(70	)
Other noninterest income		810		641		169			1,464		748		716
Total noninterest income	$	6,081	$	5,970	$	111		$	5,803	$	6,449	$	(646	)

Total noninterest income ~~increased $111,000,~~decreased $646,000, or ~~1.9%~~10.0%, for the three months ended ~~June~~September 30, 2022 compared to the same period in 2021. Material changes in the components of noninterest income are discussed below.

Service Charges on Deposit Accounts. Service fee income was $1.1 million for the three months ended ~~June~~September 30, 2022 compared to ~~$855,000~~$1.0 million for the same period in 2021, an increase of ~~$215,000,~~$143,000, or ~~25.1%~~14.3%. The increase was primarily due to an increase in the number of DDAs subject to service charges from the prior year and a reduction in the amount of insufficient fund charge refunds period over period.

Gain on Sale of Loans. We sold 7150 mortgage loans for ~~$19.5~~$14.6 million for the three months ended ~~June~~September 30, 2022 compared to ~~125~~123 mortgage loans for ~~$28.3~~$29.6 million for the three months ended ~~June~~September 30, 2021. Gain on sale of loans was ~~$882,000~~$338,000 for the three months ended ~~June~~September 30, 2022, a decrease of ~~$362,000,~~$1.4 million, or ~~29.1%~~80.8%, compared to ~~$1.2~~$1.8 million for the same period in 2021. The total gain on loans sold during the quarter ended ~~June~~September 30, 2022 consisted of ~~$665,000~~$338,000 in mortgage loans and ~~$227,000 in~~no SBA 7(a) loans sold, compared to ~~$1.1~~$1.2 million and ~~$165,000~~$541,000 for mortgage and SBA loans sold, respectively, during the quarter ended ~~June~~September 30, 2021.

~~Fiduciary and Custodial Income.~~ We have trust powers and provide fiduciary and custodial services through our trust and wealth management division. Fiduciary income was $638,000 and $570,000 for the three months ended June 30, 2022 and 2021, respectively, an increase of $68,000, or 11.9%. The revenue increase resulted primarily from 12 new accounts that opened during the quarter, which have generated additional income.

Merchant and Debit Card Fees. We earn interchange income related to activity of our customers' merchant debit card usage. Debit card interchange income was ~~$2.1~~$1.7 million for the quarter ended ~~June~~September 30, 2022, compared to ~~$1.9~~$1.6 million for the same period in 2021, an increase of ~~$139,000,~~$118,000, or ~~7.2%~~7.3%. The increase was primarily due to growth in the number of DDAs and debit card usage volume during the current quarter as compared to the prior year quarter.

Warehouse Lending Fees. A portion of our lending involves the origination of mortgage warehouse lines of credit. Warehouse lending fees decreased from ~~$211,000~~$196,000 to ~~$79,000~~$59,000 for the quarters ended ~~June~~September 30, 2021 and 2022, respectively. The decrease in warehouse lending fees of ~~$132,000,~~$137,000, or ~~62.6%~~69.9%, ~~results~~resulted from a decrease in overall warehouse lending activity in the current quarter compared to the prior year quarter. The average quarterly balance of mortgage warehouse lines decreased from ~~$71.5~~$57.5 million for the quarter ended ~~June~~September 30, 2021, to ~~$23.3~~$15.6 million for the same quarter in ~~2021,~~2022, a decrease of ~~$48.2~~$42.0 million, or ~~67.4%~~73.0%.

Mortgage Fee Income. Mortgage fee income consists of lender processing fees such as underwriting fees,
administrative fees and funding fees that are collected from mortgage loans that the Bank intends to sell on the secondary
market. Mortgage fee income decreased from ~~$157,000~~$145,000 to ~~$102,000~~$75,000 for the quarters ended ~~June~~September 30, 2021 and 2022, respectively. The decrease of ~~$55,000,~~$70,000, or ~~35.0%~~48.3%, from ~~June~~September 30, 2021 was primarily due to a lower volume of mortgage purchases and refinances in the ~~current quarter.~~the third quarter of 2022.

Other. This category includes a variety of other income producing activities, including mortgage loan origination fees, wire transfer fees, loan administration fees, and other fee income. Other noninterest income increased $716,000, or 95.7%, compared to the same period in 2021. The increase in other noninterest income was due primarily to a gain on sale of an airplane asset for $894,000 during the third quarter of 2022.

(Continued)

48.

Noninterest Expense

For the three months ended ~~June~~September 30, 2022, noninterest expense totaled ~~$19.7~~$20.2 million, an increase of ~~$2.0 million,~~$950,000, or ~~11.2%~~4.9%, compared to ~~$17.7~~$19.3 million for the three months ended ~~June~~September 30, 2021. The following table presents, for the periods indicated, the major categories of noninterest expense:


	Quarter Ended June 30,				Increase (Decrease)			Quarter Ended September 30,				Increase (Decrease)
(in thousands)	2022		2021		2022 vs. 2021			2022		2021		2022 vs. 2021
Employee compensation and benefits	$	11,730	$	10,204	$	1,526		$	11,851	$	10,998	$	853
Non-staff expenses:
Occupancy expenses		2,848		2,833		15			2,800		2,738		62
Legal and professional fees		773		747		26			503		644		(141	)
Software and technology		1,339		1,055		284			1,409		1,258		151
Amortization		178		336		(158	)		166		253		(87	)
Director and committee fees		219		167		52			213		197		16
Advertising and promotions		320		338		(18	)		378		495		(117	)
ATM and debit card expense		674		616		58			723		646		77
Telecommunication expense		187		180		7			184		197		(13	)
FDIC insurance assessment fees		237		168		69			272		214		58
Other noninterest expense		1,189		1,059		130			1,738		1,647		91
Total noninterest expense	$	19,694	$	17,703	$	1,991		$	20,237	$	19,287	$	950

Material changes in the components of noninterest expense are discussed below.

Employee Compensation and ~~Benefits~~.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. Salaries and employee benefits were ~~$11.7~~$11.9 million for the three months ended ~~June~~September 30, 2022, an increase of ~~$1.5 million,~~$853,000, or ~~15.0%~~7.8%, compared to ~~$10.2~~$11.0 million for the same period in 2021. The increase resulted from higher salary expense, higher insurance expense accruals due to increased claims experience and increased bonus accruals due to higher net earnings in the current year.

Software and Technology Fees. Software and technology fees consist of fees paid to third parties for support of software and technology products. Software support fee expense was ~~$1.3~~$1.4 million for the three months ended ~~June~~September 30, 2022, compared to ~~$1.1~~$1.3 million for the same period in 2021, an increase of ~~$284,000,~~$151,000, or ~~26.9%~~12.0%. The increase is ~~attributable primarily~~due to additional technology investments and an increase in the cost of our core processing software resulting from a new ~~software investments to improve efficiencies and automation, digital banking initiatives and other technology capabilities.~~asset tier threshold.

Amortization. Amortization costs include amortization of software and core deposit intangibles from prior acquisitions. Amortization costs were ~~$178,000~~$166,000 for the three months ended ~~June~~September 30, 2022, a decrease of ~~$158,000,~~$87,000, or ~~47.0%~~34.4%, compared to ~~$336,000~~$253,000 for the same period in 2021. The primary reason for the decrease in amortization was due to a decline in amortization expense on software from $106,000 to $53,000, and a decline in amortization of core deposit intangibles from ~~$213,000 during the three months ended June 30, 2021~~$147,000 to $113,000 during the three months ended ~~June 30, 2022.~~

~~Director and Committee Fees~~. Director and committee fees were $219,000 for the three months ended June 30, 2022, compared to $167,000 for the same period in 2021. The increase of $52,000, or 31.1%, was primarily due to an under-accrual of director bonus expense during the three months ended JuneSeptember 30, 2021 ~~as compared to the same period in 2022.~~and 2022, respectively.

ATM and Debit Card Expense. ATM and debit card expenses were ~~$674,000~~$723,000 for the three months ended ~~June~~September 30, 2022, an increase of ~~$58,000,~~$77,000, or ~~9.4%~~11.9%, compared to ~~$616,000~~$646,000 for the same period in 2021 as a result of increased ATM and debit card usage by our customers.

FDIC Insurance Assessment ~~Fees~~.Fees. FDIC insurance assessment fees were ~~$237,000~~$272,000 for the three months ended ~~June~~September 30, 2022, compared to ~~$168,000~~$214,000 for the same period in 2021. The increase of ~~$69,000,~~$58,000, or ~~41.1%~~27.1%, was primarily due to an increase in the assessment rate resulting from changes in financial ratios used in the calculation as well a higher assessment base, which is calculated as average total assets, less average tangible equity.

~~Other~~.Other. Other noninterest expense increased ~~$130,000,~~$91,000, or ~~12.3%~~5.5%, from ~~$1.1~~$1.6 million for the three months ended ~~June~~September 30, 2021 to ~~$1.2~~$1.7 million for the three months ended ~~June~~September 30, 2022. ~~The increase~~Other non-interest expense during the third quarter of 2022 included a write-down of $487,000 for an SBA receivable that was ~~primarily due~~recorded during the work-out of two previous loan relationships that were acquired as part of the Westbound Bank acquisition in 2018. These loans were charged-off or partially paid off and are now recorded as a receivable for the 75% guaranteed amount of $3.0 million. During our review process to apply for reimbursement of these guaranteed amounts from the SBA, we self-identified $487,000 that was disbursed to the borrowers by Westbound but was not expressly authorized by the SBA during underwriting. Therefore, we recorded a ~~$54,000 increase~~write-down of $487,000 in ~~charitable contributions, a $42,000 increase in meals and entertainment, a $41,000 increase in deposit and debit card-related losses sustained and a $29,000 increase in~~the event the SBA determines not to honor the guaranteed amount for these loan ~~and filing fees.~~funds.

(Continued)

49.

Income Tax Expense

For the three months ended ~~June~~September 30, 2022, income tax expense totaled ~~$2.5~~$2.4 million, in contrast to the ~~$2.3~~$2.2 million of income tax expense for the same period of 2021. The effective tax rates for the three months ended ~~June~~September 30, 2022 and 2021 were ~~18.67%~~17.82% and ~~18.14%~~19.06%, respectively. The effective tax rates differ from the statutory federal tax rate of 21% for the three months ended ~~June~~September 30, 2022 and 2021, largely due to tax exempt interest income earned on certain investment securities and loans and the nontaxable earnings on bank-owned life insurance.

Discussion and Analysis of Financial Condition as of ~~June~~September 30, 2022

Assets

Our total assets increased ~~$194.8~~$304.2 million, or ~~6.3%~~9.9%, from $3.09 billion as of December 31, 2021 to ~~$3.28~~$3.39 billion as of ~~June~~September 30, 2022. Our asset growth was primarily due to an increase in gross loans of ~~$230.3~~$358.0 million. Our cash and cash equivalents decreased by ~~$428.6~~$375.4 million as we deployed excess cash during the year primarily into investment securities, which increased ~~$383.0~~$304.9 million, and loan growth. The increase in loans was due to organic growth. Excluding PPP and mortgage warehouse loan balances, our loans have grown ~~$296.7~~$440.8 million, or ~~16.4%~~24.3%, during the first ~~half~~nine months of the year.

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 ~~June~~September 30, 2022, total loans held for investment were ~~$2.14~~$2.27 billion, an increase of ~~$230.3~~$358.0 million, or ~~12.1%~~18.8%, from the December 31, 2021 balance of $1.91 billion. Excluding the outstanding balance of PPP loans, gross loans increased ~~$278.3~~$408.1 million, or ~~15.0%~~22.0%, from December 31, 2021, ~~primarily~~ the result of organic growth and period-end increases in all segments of real estate lending. In addition to these amounts, ~~$2.8~~$2.7 million and $4.1 million in loans were classified as held for sale as of ~~June~~September 30, 2022 and December 31, 2021, respectively.

Total loans, excluding those held for sale, as a percentage of deposits, were ~~76.9%~~81.2% and 71.4% as of ~~June~~September 30, 2022 and December 31, 2021, respectively. Total loans, excluding those held for sale, as a percentage of total assets, were ~~65.2%~~66.8% and 61.8% as of ~~June~~September 30, 2022 and December 31, 2021, respectively.

The following table summarizes our loan portfolio by type of loan and dollar change and percentage change from December 31, 2021 to ~~June~~September 30, 2022:


(in thousands)		As of June 30, 2022		As of December 31, 2021		Increase (Decrease)			Percent Change				As of September 30, 2022		As of December 31, 2021		Increase (Decrease)			Percent Change
Commercial and industrial(1)		$	294,156	$	324,289	$	(30,133	)		(9.29	%)		$	289,029	$	324,289	$	(35,260	)		(10.87	%)
Real estate:
Construction and development			350,024		307,797		42,227			13.72	%			391,564		307,797		83,767			27.22	%
Commercial real estate			749,603		622,842		126,761			20.35	%			821,941		622,842		199,099			31.97	%
Farmland			166,309		145,501		20,808			14.30	%			179,402		145,501		33,901			23.30	%
1-4 family residential			450,929		410,673		40,256			9.80	%			467,983		410,673		57,310			13.96	%
Multi-family residential			55,985		30,971		25,014			80.77	%			43,025		30,971		12,054			38.92	%
Consumer and overdrafts			56,868		51,328		5,540			10.79	%			59,204		51,328		7,876			15.34	%
Agricultural			14,502		14,639		(137	)		(0.94	%)			13,917		14,639		(722	)		(4.93	%)
Total loans held for investment		$	2,138,376	$	1,908,040	$	230,336			12.07	%		$	2,266,065	$	1,908,040	$	358,025			18.76	%

Total loans held for sale		$	2,770	$	4,129	$	(1,359	)		(32.91	%)		$	2,749	$	4,129	$	(1,380	)		(33.42	%)

(1) Warehouse lending is presented as a component of commercial and industrial loans in this table and remaining tables.	(1) Warehouse lending is presented as a component of commercial and industrial loans in this table and remaining tables.											(1) Warehouse lending is presented as a component of commercial and industrial loans in this table and remaining tables.

(Continued)

50.

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 ~~June~~September 30, 2022 are summarized in the following table:


	As of June 30, 2022										As of September 30, 2022
(in thousands)	One Year or Less		After One Through Five Years		After Five Through Fifteen Years		After Fifteen Years		Total		One Year or Less		After One Through Five Years		After Five Through Fifteen Years		After Fifteen Years		Total
Commercial and industrial	$	121,442	$	106,221	$	56,993	$	9,500	$	294,156	$	104,116	$	115,059	$	60,280	$	9,574	$	289,029
Real estate:
Construction and development		154,796		99,283		59,650		36,295		350,024		177,351		94,296		79,203		40,714		391,564
Commercial real estate		31,420		219,679		243,368		255,136		749,603		48,388		220,842		265,524		287,187		821,941
Farmland		12,371		75,019		45,250		33,669		166,309		12,421		79,325		45,914		41,742		179,402
1-4 family residential		30,579		27,721		176,429		216,200		450,929		30,272		39,423		176,458		221,830		467,983
Multi-family residential		92		30,688		19,224		5,981		55,985		91		19,999		17,003		5,932		43,025
Consumer		12,814		40,197		1,813		2,044		56,868		13,465		41,186		2,462		2,091		59,204
Agricultural		9,455		4,774		273		—		14,502		8,991		4,285		641		—		13,917
Total loans	$	372,969	$	603,582	$	603,000	$	558,825	$	2,138,376	$	395,095	$	614,415	$	647,485	$	609,070	$	2,266,065
Amounts with fixed rates	$	226,865	$	453,988	$	44,759	$	37,817	$	763,429	$	247,579	$	481,406	$	42,031	$	39,187	$	810,203
Amounts with adjustable rates	$	146,104	$	149,594	$	558,241	$	521,008	$	1,374,947	$	147,516	$	133,009	$	605,454	$	569,883	$	1,455,862

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.

Nonperforming assets as a percentage of total loans were ~~0.46%~~0.41% at ~~June~~September 30, 2022, compared to 0.15% at December 31, 2021. The Bank's non-performing assets consist primarily of non-accrual loans. Four loans were added to ~~non-accrual~~nonaccrual status in the ~~current~~second quarter of 2022 and are Small Business Administration (SBA) 7(a), partially guaranteed (75%) loans, acquired in the June 2018 acquisition of Westbound Bank, with combined book balances of $6.7 million as of ~~June~~September 30, 2022. These loans, collateralized by two hotels, were identified as problem assets prior to COVID-19 but obtained government stimulus and other relief which allowed the two related borrowers to remain current through early 2022. Management continues to work toward a satisfactory resolution for these four loans, however, in the event of foreclosure, a significant loss is not expected due to estimated current collateral ~~values and the SBA partial guarantees.~~values.

(Continued)

51.

The following table presents information regarding nonperforming assets and loans as of:


(dollars in thousands)		June 30, 2022			December 31, 2021				September 30, 2022			December 31, 2021
Nonaccrual loans(1)		$	9,848		$	2,831			$	9,330		$	2,831
Accruing loans 90 or more days past due			—			—				—			—
Total nonperforming loans			9,848			2,831				9,330			2,831
Other real estate owned:
Residential real estate			—			—				5			—
Total other real estate owned			—			—				5			—
Repossessed assets owned			27			14				—			14
Total other assets owned			27			14				5			14
Total nonperforming assets		$	9,875		$	2,845			$	9,335		$	2,845
TDR loans - nonaccrual(1)		$	6,764		$	103			$	6,753		$	103
TDR loans - accruing			2,652			9,466				1,895			9,466
Ratio of nonaccrual loans to total loans(2)			0.46	%		0.15	%			0.41	%		0.15	%
Ratio of nonperforming loans to total loans(2)			0.46	%		0.15	%			0.41	%		0.15	%
Ratio of nonperforming assets to total loans(2)			0.46	%		0.15	%			0.41	%		0.15	%
Ratio of nonperforming assets to total assets			0.30	%		0.09	%			0.28	%		0.09	%

(1) Restructured loans on nonaccrual are included in nonaccrual loans, which are a component of nonperforming loans.	(1) Restructured loans on nonaccrual are included in nonaccrual loans, which are a component of nonperforming loans.							(1) Restructured loans on nonaccrual are included in nonaccrual loans, which are a component of nonperforming loans.
(2) Excludes loans held for sale of $2.8 million and $4.1 million as of June 30, 2022 and December 31, 2021, respectively.
(2) Excludes loans held for sale of $2.7 million and $4.1 million as of September 30, 2022 and December 31, 2021, respectively.								(2) Excludes loans held for sale of $2.7 million and $4.1 million as of September 30, 2022 and December 31, 2021, respectively.

The following table presents nonaccrual loans by category as of:


(in thousands)	June 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Commercial and industrial	$	184	$	148	$	71	$	148
Real estate:
Commercial real estate		7,426		642		7,354		642
Farmland		97		298		117		298
1-4 family residential		1,550		1,535		1,534		1,535
Consumer and overdrafts		382		160		123		160
Agricultural		209		48		131		48
Total	$	9,848	$	2,831	$	9,330	$	2,831

Potential Problem Loans

From a credit risk standpoint, we classify loans in one of five risk ratings: pass, special mention, substandard, doubtful or loss. Within the pass rating, we classify loans into one of the following five subcategories based on perceived credit risk, including repayment capacity and collateral security: superior, excellent, good, acceptable and 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 to be inherent in each credit as of each monthly reporting period. Our methodology is structured so that specific ACL 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.

(Continued)

52.

The following tables summarize the internal ratings of our performing, classified and nonaccrual (as well as substandard) loans, by category, as of:


	June 30, 2022														September 30, 2022
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Loss		Nonaccrual		Total		Pass		Special Mention		Substandard		Doubtful		Loss		Nonaccrual		Total
Commercial and industrial	$	292,679	$	148	$	1,145	$	—	$	—	$	184	$	294,156	$	286,333	$	1,465	$	1,160	$	—	$	—	$	71	$	289,029
Real estate:
Construction and development		349,103		920		1		—		—		—		350,024		389,703		1,861		—		—		—		—		391,564
Commercial real estate		710,773		27,327		4,077		—		—		7,426		749,603		800,219		6,886		7,482		—		—		7,354		821,941
Farmland		166,113		—		99		—		—		97		166,309		179,188		—		97		—		—		117		179,402
1-4 family residential		449,248		131		—		—		—		1,550		450,929		466,295		154		—		—		—		1,534		467,983
Multi-family residential		55,985		—		—		—		—		—		55,985		43,025		—		—		—		—		—		43,025
Consumer and overdrafts		56,444		42		—		—		—		382		56,868		59,055		26		—		—		—		123		59,204
Agricultural		14,238		6		49		—		—		209		14,502		13,734		4		48		—		—		131		13,917
Total	$	2,094,583	$	28,574	$	5,371	$	—	$	—	$	9,848	$	2,138,376	$	2,237,552	$	10,396	$	8,787	$	—	$	—	$	9,330	$	2,266,065


	December 31, 2021
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Loss		Nonaccrual		Total
Commercial and industrial	$	323,479	$	102	$	560	$	—	$	—	$	148	$	324,289
Real estate:
Construction and development		306,242		944		611		—		—		—		307,797
Commercial real estate		573,535		6,103		42,562		—		—		642		622,842
Farmland		145,105		26		72		—		—		298		145,501
1-4 family residential		409,120		18		—		—		—		1,535		410,673
Multi-family residential		30,971		—		—		—		—		—		30,971
Consumer and overdrafts		51,087		81		—		—		—		160		51,328
Agricultural		14,506		13		72		—		—		48		14,639
Total	$	1,854,045	$	7,287	$	43,877	$	—	$	—	$	2,831	$	1,908,040

Allowance for Credit Losses

We maintain an allowance for credit losses (“ACL”) that represents management’s best estimate of the appropriate level of losses and risks inherent in our applicable financial assets under the current expected credit loss model. The amount of the allowance for credit 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 judgment 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. As of ~~June~~September 30, 2022, 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 ~~six~~nine months ended ~~June~~September 30, 2022.

For held to maturity debt securities, the Company evaluates expected credit losses on a collective basis by major security type with each type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. With regard to U.S. Treasury and residential mortgage backed securities issued by the U.S. governments, or agencies thereof, it is expected that the securities will not be settled at prices less than the amortized cost bases of the securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S. government. Accordingly, no allowance for credit losses has been recorded for these securities. With regard to municipal securities, management considers 1) issuer bond ratings, 2) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities, 3) internal forecasts and 4) whether or not such securities are guaranteed by the Texas Permanent School Fund or pre-refunded by the issuers.

(Continued)

53.

As of ~~June~~September 30, 2022, the Company determined there were no credit related concerns that warrant an ACL for the held to maturity portfolio.

In determining the ACL for loans held for investment, we primarily estimate losses on segments of loans with similar risk characteristics and where the potential 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 ACL is 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 impact of future economic conditions on loan loss rates. Please see “~~Critical~~“Critical Accounting Policies - Allowance for Credit ~~Losses~~.Losses.”

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;

•

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 ~~June~~September 30, 2022, the allowance for credit losses totaled ~~$29.0~~$29.2 million, or ~~1.36%~~1.29%, of total loans, excluding those ~~held for sale, and also totaled 1.36%, excluding PPP loans and loans~~ held for sale. As of December 31, 2021, the allowance for credit losses totaled $30.4 million, or 1.59%, of total loans, excluding those held for sale, and totaled 1.64%, excluding PPP loans and loans held for sale. The decrease in the ACL of ~~$1.4~~$1.2 million, or ~~4.7%~~3.9%, is partially the result of fully unwinding the COVID-specific qualitative factor during the first quarter of 2022, ~~that~~which was ~~established during 2020. The effects of unwinding the COVID-specific qualitative factor was partially~~ offset by growth in the loan portfolio and by adjustments to standard qualitative factors in order to capture uncertainties related to high inflation, likely negative impacts of rising rates on the economy and geopolitical uncertainty that exists. We expect further upward adjustments to qualitative factors in the fourth quarter of 2022 and possibly into 2023 as economic forecasts and impacts of recession become more clear.

(Continued)

54.

The following table presents, as of and for the periods indicated, an analysis of the allowance for credit losses and other related data:


	As of and For The Six Months Ended June 30,						As of and For The Year Ended December 31,				As of and For The Nine Months Ended September 30,						As of and For The Year Ended December 31,
(dollars in thousands)	2022			2021			2021				2022			2021			2021
Average loans outstanding(1)	$	2,003,053		$	1,899,864		$	1,911,540			$	2,066,529		$	1,906,989		$	1,911,540
Gross loans outstanding at end of period(2)		2,138,376			1,890,164			1,908,040				2,266,065			1,970,881			1,908,040
Allowance for credit losses at beginning of the period		30,433			33,619			33,619				30,433			33,619			33,619
Reversal of provision for credit losses		(1,250	)		(1,000	)		(1,700	)			(650	)		(1,700	)		(1,700	)
Charge offs:
Commercial and industrial		154			238			411				192			300			411
Real estate:
Commercial real estate		—			760			816				—			816			816
Consumer		36			76			151				313			113			151
Overdrafts		138			84			263				241			173			263
Total charge-offs		328			1,158			1,641				746			1,402			1,641
Recoveries:
Commercial and industrial		45			11			21				62			15			21
Real estate:
Construction and development		—			1			1				—			1			1
Commercial real estate		1			11			30				1			11			30
1-4 family residential		30			—			—				30			—			—
Consumer		23			28			35				40			32			35
Agriculture		—			—			8				—			—			8
Overdrafts		43			36			60				65			45			60
Total recoveries		142			87			155				198			104			155
Net charge-offs (recoveries)		186			1,071			1,486
Net charge-offs												548			1,298			1,486
Allowance for credit losses at end of period	$	28,997		$	31,548		$	30,433			$	29,235		$	30,621		$	30,433
Ratio of allowance to end of period loans(2)		1.36	%		1.67	%		1.59	%			1.29	%		1.55	%		1.59	%
Ratio of net charge-offs (recoveries) to average loans(1)		0.01	%		0.06	%		0.08	%
Ratio of net charge-offs to average loans(1)												0.03	%		0.07	%		0.08	%

Total nonaccrual loans	$	9,848		$	3,593		$	2,831			$	9,330		$	3,135		$	2,831
Ratio of allowance to nonaccrual loans		294.4	%		878.0	%		1075.0	%			313.3	%		976.7	%		1075.0	%

(1) Includes average outstanding balances of loans held for sale of $2.9 million, $3.7 million and $3.4 million for the six months ended June 30, 2022 and 2021, and for the year ended December 31, 2021, respectively.
(2) Excludes loans held for sale of $2.8 million, $5.1 million and $4.1 million for the six months ended June 30, 2022 and 2021, and for the year ended December 31, 2021, respectively.
(1) Includes average outstanding balances of loans held for sale of $2.6 million, $3.7 million and $3.4 million for the nine months ended September 30, 2022 and 2021, and for the year ended December 31, 2021, respectively.										(1) Includes average outstanding balances of loans held for sale of $2.6 million, $3.7 million and $3.4 million for the nine months ended September 30, 2022 and 2021, and for the year ended December 31, 2021, respectively.
(2) Excludes loans held for sale of $2.7 million, $1.9 million and $4.1 million for the nine months ended September 30, 2022 and 2021, and for the year ended December 31, 2021, respectively.										(2) Excludes loans held for sale of $2.7 million, $1.9 million and $4.1 million for the nine months ended September 30, 2022 and 2021, and for the year ended December 31, 2021, respectively.

The ratio of allowance for credit losses to ~~non-performing~~nonperforming loans decreased from 1075.0% at December 31, 2021 to ~~294.4%~~313.3% at ~~June~~September 30, 2022. ~~Non-performing~~Nonperforming loans increased to ~~$9.8~~$9.3 million at ~~June~~September 30, 2022, compared to $2.8 million at December 31, 2021.

The following table shows the ratio of net charge-offs (recoveries) to average loans outstanding by loan category for the dates indicated:


	Six Months Ended June 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Commercial and industrial		0.04	%		0.05	%		0.04	%		0.07	%
Real estate:
Commercial real estate		—			0.12	%		—			0.13	%
1-4 family residential		(0.01	%)		—			(0.01	%)		—
Consumer		0.02	%		0.10	%		0.50	%		0.16	%
Overdrafts		22.41	%		11.94	%		40.18	%		31.68	%
Net charge-offs (recoveries) to total loans		0.01	%		0.06	%
Net charge-offs to total loans								0.03	%		0.07	%

Although we believe that we have established our allowance for credit losses in accordance with GAAP and that the allowance for credit losses was adequate to provide for known and inherent losses in the portfolio at all times shown above, future provisions for credit 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 credit losses could be required.

(Continued)

55.

The following table shows the allocation of the allowance for credit losses among loan categories and certain other information as of the dates indicated. The allocation of the allowance for credit losses as shown in the table should neither be interpreted as an indication of future charge-offs, nor as an indication that charge-offs in future periods will necessarily occur in these amounts or in the indicated proportions. The total allowance is available to absorb losses from any loan category.


	As of June 30, 2022					As of December 31, 2021					As of September 30, 2022					As of December 31, 2021
(in thousands)	Amount		Percent to Total Loans			Amount		Percent to Total Loans			Amount		Percent to Total Loans			Amount		Percent to Total Loans
Commercial and industrial	$	3,953		13.63	%	$	3,600		11.83	%	$	3,817		13.06	%	$	3,600		11.83	%
Real estate:
Construction and development		4,248		14.65	%		4,221		13.87	%		4,610		15.77	%		4,221		13.87	%
Commercial real estate		11,346		39.13	%		13,765		45.23	%		11,645		39.83	%		13,765		45.23	%
Farmland		1,753		6.05	%		1,698		5.58	%		1,839		6.29	%		1,698		5.58	%
1-4 family residential		5,969		20.58	%		5,818		19.12	%		6,006		20.54	%		5,818		19.12	%
Multi-family residential		604		2.08	%		396		1.30	%		446		1.53	%		396		1.30	%
Total real estate		23,920		82.49	%		25,898		85.10	%		24,546		83.96	%		25,898		85.10	%
Consumer and overdrafts		963		3.32	%		766		2.51	%		722		2.47	%		766		2.51	%
Agricultural		161		0.56	%		169		0.56	%		150		0.51	%		169		0.56	%
Total allowance for credit losses	$	28,997		100.00	%	$	30,433		100.00	%	$	29,235		100.00	%	$	30,433		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 ~~June~~September 30, 2022, the carrying amount of our investment securities totaled ~~$909.5~~$831.3 million, an increase of ~~$383.0~~$304.9 million, or ~~72.8%~~57.9%, compared to $526.5 million as of December 31, 2021. Investment securities represented ~~27.7%~~24.5% and 17.1% of total assets as of ~~June~~September 30, 2022 and December 31, 2021, respectively.

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 equity. As of ~~June~~September 30, 2022, the Company determined that all available for sale securities that experienced a decline in fair value below their amortized cost basis were impacted by noncredit-related factors and that securities held to maturity have not experienced credit deterioration; therefore, the Company carried no ACL with respect to our securities portfolio at ~~June~~September 30, 2022.

From time to time, we have reclassified certain securities from available for sale to held to maturity. Such transfers are made at fair value at the date of transfer. The net unrealized holding gains or losses at the date of transfer are retained in other comprehensive income and in the carrying value of the held to maturity securities and are amortized over the remaining life of the security. The net unamortized, unrealized loss remaining on transferred securities included in accumulated other comprehensive loss in the accompanying balance sheets totaled ~~$5.3~~$5.5 million at ~~June~~September 30, 2022, compared to a net unamortized, unrealized gain of $8.9 million at December 31, 2021. This amount will be amortized out of accumulated other comprehensive loss over the remaining life of the underlying securities as an adjustment of the yield on those securities. During the second quarter of 2022, we transferred $106.2 million of securities from available for sale to held to maturity, which included an unrealized loss on the date of transfer of $13.2 million.

The following tables summarize the amortized cost and estimated fair value of our investment securities:


	As of June 30, 2022								As of September 30, 2022
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government agencies	$	9,066	$	—	$	1,181	$	7,885	$	9,103	$	—	$	1,277	$	7,826
Treasury securities		324,510		—		2,832		321,678		253,733		—		3,409		250,324
Corporate bonds		35,029		—		1,455		33,574		35,003		—		1,893		33,110
Municipal securities		205,762		528		8,508		197,782		201,588		119		10,265		191,442
Mortgage-backed securities		282,930		20		27,769		255,181		285,808		5		32,649		253,164
Collateralized mortgage obligations		70,006		17		7,531		62,492		66,641		6		8,725		57,922
Total	$	927,303	$	565	$	49,276	$	878,592	$	851,876	$	130	$	58,218	$	793,788

(Continued)

56.


	As of December 31, 2021
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government agencies	$	10,013	$	—	$	42	$	9,971
Corporate bonds		35,080		940		85		35,935
Municipal securities		181,310		8,364		118		189,556
Mortgage-backed securities		224,563		1,477		1,816		224,224
Collateralized mortgage obligations		74,925		971		904		74,992
Total	$	525,891	$	11,752	$	2,965	$	534,678

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 ~~June~~September 30, 2022 and December 31, 2021, 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.

The following tables set forth the fair value of available for sale securities and the amortized cost of held to maturity securities, and 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 June 30, 2022															As of September 30, 2022
	Within One Year			After One Year but Within Five Years			After Five Years but Within Ten Years			After Ten Years			Total			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	Amount		Yield	Amount		Yield	Amount		Yield	Amount		Yield	Total		Yield
U.S. government agencies	$	—	—	$	—	—	$	9,066	1.35%	$	—	—	$	9,066	1.35%	$	—	—	$	—	—	$	9,103	1.35%	$	—	—	$	9,103	1.35%
Treasury securities		245,681	0.81%		78,829	2.13%		—	—		—	—		324,510	1.13%		184,919	0.95%		68,814	2.51%		—	—		—	—		253,733	1.37%
Corporate bonds		—	—		16,826	3.21%		16,748	4.12%		—	—		33,574	3.67%		4,967	2.90%		9,743	3.41%		18,400	4.00%		—	—		33,110	3.67%
Municipal securities		30,470	3.85%		83,798	3.28%		62,644	3.30%		28,798	2.78%		205,710	3.32%		23,453	3.64%		38,823	3.39%		64,383	3.11%		74,859	3.23%		201,518	3.27%
Mortgage-backed securities		3,116	2.44%		60,915	1.83%		194,467	2.26%		9,488	1.87%		267,986	2.15%		3,097	2.46%		84,671	1.76%		176,113	2.51%		5,026	1.96%		268,907	2.25%
Collateralized mortgage obligations		686	2.81%		27,454	2.73%		40,499	1.63%		—	—		68,639	2.09%		542	3.02%		43,621	2.22%		20,796	1.63%		—	—		64,959	2.01%
Total	$	279,953	1.17%	$	267,822	2.54%	$	323,424	2.45%	$	38,286	2.52%	$	909,485	2.07%	$	216,978	1.31%	$	245,672	2.35%	$	288,795	2.62%	$	79,885	3.07%	$	831,330	2.25%


	As of December 31, 2021
	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
U.S. government agencies	$	—	—	$	—	—	$	9,971	1.35%	$	—	—	$	9,971	1.35%
Corporate bonds		—	—		15,223	3.21%		20,712	4.01%		—	—		35,935	3.68%
Municipal securities		13,471	3.43%		57,858	3.31%		44,342	2.92%		65,639	3.19%		181,310	3.18%
Mortgage-backed securities		70	3.33%		129,327	1.38%		78,468	1.73%		16,396	2.08%		224,261	1.55%
Collateralized mortgage obligations		1,491	3.22%		65,897	1.99%		7,604	1.18%		—	—		74,992	1.93%
Total	$	15,032	3.41%	$	268,305	2.04%	$	161,097	2.29%	$	82,035	2.95%	$	526,469	2.29%

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 typically 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,

(Continued)

57.

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 ~~3.99~~4.36 years with an estimated effective duration of ~~3.34~~3.46 years as of ~~June~~September 30, 2022.

As of ~~June~~September 30, 2022 and December 31, 2021, 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 equity.

The average yield of our securities portfolio was ~~2.07%~~2.25% as of ~~June~~September 30, 2022, down from 2.29% as of December 31, 2021. The decline in average yield resulted primarily from the purchase during the first ~~half~~quarter of 2022 of short term treasury securities ~~with~~that had a book value of ~~$324.5~~$253.7 million as of ~~June~~September 30, 2022, ~~that~~and earn an average yield of ~~1.13%~~1.37%. Average yields in all other categories of securities have stayed the same or have increased as we've reinvested in new securities at higher rates. As of ~~June~~September 30, 2022, treasury securities comprised ~~35.7%~~30.5% of the portfolio. No treasury securities were held as of December 31, 2021.

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.

Total deposits as of ~~June~~September 30, 2022 were ~~$2.78~~$2.79 billion, an increase of ~~$108.8~~$119.7 million, or ~~4.1%~~4.5%, compared to $2.67 billion as of December 31, 2021. The deposit balance increase was due to organic growth.

The following table presents the average balances on deposits for the periods indicated:


(dollars in thousands)	For the Six Months Ended June 30, 2022		For the Year Ended December 31, 2021		Increase (Decrease) ($)			Increase (Decrease) (%)			For the Nine Months Ended September 30, 2022		For the Year Ended December 31, 2021		Increase (Decrease) ($)			Increase (Decrease) (%)
NOW and interest-bearing demand accounts	$	409,311	$	355,171	$	54,140			15.24	%	$	383,149	$	355,171	$	27,978			7.88	%
Savings accounts		138,388		119,818		18,570			15.50	%		140,461		119,818		20,643			17.23	%
Money market accounts		829,846		773,553		56,293			7.28	%		832,662		773,553		59,109			7.64	%
Certificates and other time deposits		324,671		352,833		(28,162	)		(7.98	%)		328,453		352,833		(24,380	)		(6.91	%)
Total interest-bearing deposits		1,702,216		1,601,375		100,841			6.30	%		1,684,725		1,601,375		83,350			5.20	%
Noninterest-bearing demand accounts		1,059,032		916,562		142,470			15.54	%		1,075,941		916,562		159,379			17.39	%
Total deposits	$	2,761,248	$	2,517,937	$	243,311			9.66	%	$	2,760,666	$	2,517,937	$	242,729			9.64	%

The aggregate amount of certificates and other time deposits in denominations greater than $250,000 as of ~~June~~September 30, 2022 and December 31, 2021 was ~~$113.6~~$123.8 million and $228.1 million, respectively.

The scheduled maturities of uninsured certificates and other time deposits greater than $250,000 were as follows:


(dollars in thousands)	As of June 30, 2022		As of September 30, 2022
Under 3 months	$	31,236	$	26,860
3 to 6 months		16,001		17,459
6 to 12 months		41,087		53,211
Over 12 months		10,556		8,650
Total	$	98,880	$	106,180

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~~.Advances. The FHLB allows us to borrow on a blanket floating lien status collateralized by certain securities and loans. As of ~~June~~September 30, 2022 and December 31, 2021, total borrowing capacity of ~~$698.8~~$684.4 million and $638.7 million, respectively, was available under this arrangement. Our outstanding FHLB advances mature within one year. As of ~~June~~September 30, 2022, approximately ~~$1.65~~$1.77 billion in real estate loans were pledged as collateral for our FHLB borrowings. We utilize these borrowings to meet liquidity needs and to hedge interest rate risk.

(Continued)

58.

The following table presents our FHLB borrowings by maturity and weighted average rate as of ~~June~~September 30, 2022:


(dollars in thousands)	Balance		Weighted Average Interest Rate			Balance		Weighted Average Interest Rate
Less than 90 days	$	91,500		1.40	%	$	185,000		2.68	%
90 days to less than one year		40,000		2.38	%		40,000		3.91	%
Total	$	131,500		1.70	%	$	225,000		1.70	%

Federal Reserve Bank of ~~Dallas~~.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 ~~June~~September 30, 2022 and December 31, 2021, ~~$214.9~~$216.7 million and $182.9 million, respectively, were available under this arrangement. As of ~~June~~September 30, 2022 and December 31, 2021, approximately ~~$269.2~~$275.6 million and $236.4 million, respectively, in consumer and commercial and industrial loans were pledged as collateral. As of ~~June~~September 30, 2022 and December 31, 2021, no borrowings were outstanding under this arrangement.

Subordinated Debt, Trust Preferred Securities and Other Debentures. 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. These debentures were redeemed in May 2022.

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 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.

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. 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 the Trust III Debentures is payable at a variable rate per annum, reset quarterly, equal to 3-month LIBOR plus 1.67%. Interest on the DCB Trust I Debentures 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.

Both the DCB Trust I Debentures and the Trust III Debentures are redeemable, in whole or in part, at our option after at least 30, but not more than 60, days' notice, on any interest payment date, at a redemption price equal to 100% of the amount to be redeemed, plus accrued interest to the date of redemption.

On March 4, 2022, the Company completed a private placement of $35.0 million aggregate principal amount of its fixed-to-floating rate subordinated note due April 1, 2032. The subordinated note initially bears a fixed interest rate of 3.625% per year, due semi-annually in arrears on April 1 and October 1. Commencing on April 1, 2027, the interest rate on the subordinated note will reset each quarter at a floating interest rate equal to the then-current three month term SOFR plus 192 basis points. The Company may at its option redeem in whole or in part the subordinated note on or after March 4, 2027 without a premium. The subordinated note is treated as Tier 2 Capital for regulatory purposes (subject to reductions in the amount includable as Tier 2 capital in the final five years prior to maturity), and is presented net of $664,000 in related issuance costs on the consolidated balance sheets.

On May 1, 2020, the Company issued $10.0 million in debentures to directors and other related parties. 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 arrears during the term of the debentures. $500,000 matured in November of 2020 and $9.5 million remains outstanding as of ~~June~~ September

(Continued)

59.

30, 2022. The debentures are redeemable by the Company at its option, in whole in or part, at any time on or before the due

~~(Continued)~~

~~59.~~

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.

Other Borrowings. We have historically used a line of credit with a correspondent bank as a source of funding for working capital needs, the payment of dividends when there is a temporary timing difference in cash flows, and repurchases of equity securities. In March 2017, we entered into an unsecured revolving line of credit for $25.0 million, and we renewed that line of credit in March 2022. The line of credit bears interest at the prime rate ~~(4.75%~~(6.25% as of ~~June~~September 30, 2022) subject to a floor of 3.50%, with quarterly interest payments, and matures in March 2023. As of ~~June~~September 30, 2022, there was no outstanding balance on the line of credit.

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. For the ~~six~~nine months ended ~~June~~September 30, 2022 and the year ended December 31, 2021, liquidity needs were primarily met by core deposits, security and loan maturities and amortizing investment and loan portfolios. Although access to purchased funds from correspondent banks and overnight or longer term advances from the FHLB and the Federal Reserve Bank of Dallas are available, and have been utilized on occasion to take advantage of investment opportunities, we do not generally rely on these external funding sources. As of ~~June~~September 30, 2022 and December 31, 2021, we maintained two federal funds lines of credit with commercial banks that provide for the availability to borrow up to an aggregate $60.0 million in federal funds. There were no funds under these lines of credit outstanding as of ~~June~~September 30, 2022 and December 31, 2021. In addition to these federal funds lines of credit, our $25.0 million revolving line of credit discussed above in “~~Other~~“Other Borrowings” provides an additional source of liquidity.

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 ~~$3.18~~$3.23 billion for the ~~six~~nine months ended ~~June~~September 30, 2022 and $2.92 billion for the year ended December 31, 2021.


	Six Months Ended June 30, 2022			Year Ended December 31, 2021			Nine Months Ended September 30, 2022			Year Ended December 31, 2021
Sources of Funds:
Deposits:
Noninterest-bearing		33.32	%		31.36	%		33.29	%		31.36	%
Interest-bearing		53.56	%		54.79	%		52.13	%		54.79	%
Advances from FHLB		1.33	%		1.68	%		2.98	%		1.68	%
Line of credit		0.06	%		0.21	%		0.00	%		0.21	%
Subordinated debt		1.31	%		0.68	%		1.42	%		0.68	%
Securities sold under agreements to repurchase		0.31	%		0.51	%		0.28	%		0.51	%
Accrued interest and other liabilities		0.79	%		0.85	%		0.79	%		0.85	%
Equity		9.32	%		9.92	%		9.11	%		9.92	%
Total		100.00	%		100.00	%		100.00	%		100.00	%

Uses of Funds:
Loans		62.10	%		64.31	%		63.04	%		64.31	%
Securities available for sale		11.87	%		12.19	%		9.79	%		12.19	%
Securities held to maturity		12.37	%		2.54	%		15.44	%		2.54	%
Nonmarketable equity securities		0.46	%		0.34	%		0.52	%		0.34	%
Federal funds sold		5.74	%		12.75	%		3.97	%		12.75	%
Interest-bearing deposits in other banks		0.67	%		0.91	%		0.54	%		0.91	%
Other noninterest-earning assets		6.79	%		6.96	%		6.70	%		6.96	%
Total		100.00	%		100.00	%		100.00	%		100.00	%

Average noninterest-bearing deposits to average deposits		38.35	%		36.40	%		38.97	%		36.40	%
Average loans to average deposits		72.54	%		75.92	%		74.86	%		75.92	%

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 ~~$103.2~~$159.5 million, or ~~5.4%~~8.4%, for the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the same period in 2021, while our average deposits increased ~~$306.8~~$274.2 million, or ~~12.5%~~11.0%, for the same time period. We predominantly invest excess ~~deposits~~

(Continued)

60.

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 ~~June~~September 30, 2022, we had ~~$489.7~~$529.4 million in outstanding commitments to extend credit and ~~$10.5~~$8.1 million in commitments associated with outstanding standby and commercial letters of credit. As of December 31, 2021, we had $405.3 million in outstanding commitments to extend credit and $8.4 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 ~~June~~September 30, 2022 and December 31, 2021, we had no exposure to future cash requirements associated with known uncertainties or capital expenditures of a material nature. As of ~~June~~September 30, 2022, we had cash and cash equivalents of ~~$71.0~~$124.2 million, compared to $499.6 million as of December 31, 2021. The decrease was primarily due to a decrease in federal funds sold of ~~$429.6~~$360.1 million, which was primarily used to purchase additional investment securities and fund loan growth during the period.

Capital Resources

Total equity decreased to ~~$282.8~~$288.7 million as of ~~June~~September 30, 2022, compared to $302.2 million as of December 31, 2021, a decrease of ~~$19.4~~$13.6 million, or ~~6.4%~~4.5%. The decrease from December 31, 2021 was due to repurchase of treasury stock for ~~$8.1~~$8.8 million, payment of dividends of ~~$5.3~~$7.9 million and a decrease in other comprehensive income during the year of ~~$28.8~~$31.3 million, resulting from fluctuations in the fair market value of securities. These decreases were partially offset by net earnings attributable to Guaranty Bancshares, Inc. of ~~$21.5~~$32.4 million for the ~~first half of~~nine months ended September 30, 2022.

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 certain regulatory capital requirements at the bank holding company and bank levels. As of ~~June~~September 30, 2022 and December 31, 2021, we were in compliance with all applicable regulatory capital requirements at the bank and bank holding company levels, and the Bank was classified as “well capitalized,” for purposes of the prompt corrective action regulations. As we deploy our capital, our regulatory capital levels may decrease depending on our level of earnings and provisions for credit losses. However, we expect to closely monitor our loan portfolio, operating expenses and overall capital levels in order to remain in compliance with all regulatory capital standards applicable to us.

The following table presents our regulatory capital ratios as of:


	June 30, 2022					December 31, 2021					September 30, 2022					December 31, 2021
(dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
Guaranty Bancshares, Inc. (consolidated)

Total capital (to risk weighted assets)	$	340,931		15.06	%	$	297,370		14.51	%	$	350,305		14.60	%	$	297,370		14.51	%
Tier 1 capital (to risk weighted assets)		278,297		12.29	%		271,696		13.25	%		286,668		11.95	%		271,696		13.25	%
Tier 1 capital (to average assets)		278,297		8.72	%		271,696		9.18	%		286,668		8.63	%		271,696		9.18	%
Common equity tier 1 risk-based capital		271,080		11.97	%		261,386		12.75	%		279,451		11.65	%		261,386		12.75	%

Guaranty Bank & Trust, N.A.

Total capital (to risk weighted assets)	$	337,604		14.92	%	$	311,335		15.19	%	$	350,271		14.60	%	$	311,335		15.19	%
Tier 1 capital (to risk weighted assets)		309,306		13.67	%		285,661		13.94	%		321,036		13.38	%		285,661		13.94	%
Tier 1 capital (to average assets)		309,306		9.68	%		285,661		9.66	%		321,036		9.68	%		285,661		9.66	%
Common equity tier 1 risk-based capital		309,306		13.67	%		285,661		13.94	%		321,036		13.38	%		285,661		13.94	%

(Continued)

61.

Contractual Obligations

The following table summarizes contractual obligations and other commitments to make future payments as of ~~June~~September 30, 2022 (other than non-time deposit obligations), which consist of future cash payments associated with our contractual obligations.


	As of June 30, 2022										As of September 30, 2022
(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		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	$	275,530	$	40,418	$	10,539	$	—	$	326,487	$	292,275	$	37,197	$	10,731	$	—	$	340,203
Advances from FHLB		131,500		—		—		—		131,500		225,000		—		—		—		225,000
Subordinated debt		3,500		6,000		—		44,646		54,146		3,500		6,000		—		41,619		51,119
Operating leases		1,886		3,873		3,291		5,303		14,353		1,940		3,872		3,221		4,942		13,975
Total	$	412,416	$	50,291	$	13,830	$	49,949	$	526,486	$	522,715	$	47,069	$	13,952	$	46,561	$	630,297

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 ~~June~~September 30, 2022 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 June 30, 2022										As of September 30, 2022
(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		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	$	8,000	$	1,575	$	6	$	924	$	10,505	$	5,016	$	1,835	$	371	$	914	$	8,136
Commitments to extend credit		242,550		111,742		10,452		124,993		489,737		240,452		112,189		18,585		158,147		529,373
Total	$	250,550	$	113,317	$	10,458	$	125,917	$	500,242	$	245,468	$	114,024	$	18,956	$	159,061	$	537,509

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. Management evaluated the likelihood of funding the standby and commercial letters of credit as of ~~June~~September 30, 2022, and determined the likelihood to be improbable. Therefore, no ACL was recorded for standby and commercial letters of credit as of ~~June~~September 30, 2022.

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) 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 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

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62.

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 as of ~~June~~September 30, 2022.

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.

Annualized inflation in the U.S. ~~accelerated to 9.1%~~remained high at 8.2% in ~~June~~September 2022, ~~the highest level in over 40 years,~~ primarily as a result of lingering effects from the COVID-19 pandemic and related governmental policies and exacerbated by the war in Ukraine. However, unlike many industrial companies, substantially all of our assets and liabilities are monetary in nature, which means that interest rates have a more significant impact on our performance than the effects of general levels of inflation.

To combat record levels of inflation, the Federal Reserve approved its first interest rate increase in more than three years in March 2022, and has since raised interest rates by ~~225~~300 basis points through ~~July~~October 31, 2022. Members of the Federal Open Markets Committee have signaled expectations for further rate increases that could result in an approximately ~~100~~125 basis point increase in the federal funds rate during the remainder of 2022, with potential additional increases in 2023. If the Federal Reserve does ultimately increase interest rates, we expect those increases to have a net positive impact on our net income, despite likely absolute increases in our operating expenses due to ~~inflation~~
inflation.

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 the Bank, 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

~~(Continued)~~

~~63.~~

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

(Continued)

63.

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%~~10.0% for a 100 basis point shift, ~~20.0%~~15.0% for a 200 basis point shift and ~~30.0%~~25.0% for a 300 basis point shift.

The following table summarizes the simulated change in net interest income and fair value of equity over a 12-month horizon as of:


	June 30, 2022						December 31, 2021						September 30, 2022						December 31, 2021
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			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		2.74	%		(9.00	%)		13.70	%		1.57	%		0.95	%		(13.68	%)		13.70	%		1.57	%
+200		1.85	%		(4.28	%)		8.38	%		2.75	%		0.51	%		(7.90	%)		8.38	%		2.75	%
+100		0.84	%		(1.50	%)		2.66	%		1.27	%		(0.01	%)		(3.64	%)		2.66	%		1.27	%
Base		—			—			—			—			—			—			—			—
-100		(0.85	%)		(1.66	%)		(5.11	%)		(1.92	%)		0.40	%		0.91	%		(5.11	%)		(1.92	%)
-200		(0.70	%)		(11.33	%)		(14.47	%)		(0.36	%)		1.65	%		(5.06	%)		(14.47	%)		(0.36	%)

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.

Impact of Inflation

Our consolidated financial statements and related notes included elsewhere in this Report have been prepared in accordance with GAAP. GAAP requires the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative value of money over time due to inflation or deflation.

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 Report 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 Report 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 in this Report 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 Report when comparing such non-GAAP financial measures.

Tangible Book Value Per Common ~~Share~~.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

~~(Continued)~~

~~64.~~

(1) tangible common equity as total equity attributable to Guaranty Bancshares, Inc., less goodwill, core deposit intangibles and other intangible assets, net of accumulated amortization, and (2) tangible book value per common share as tangible

(Continued)

64.

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 equity attributable to Guaranty Bancshares, Inc. to tangible common equity and presents tangible book value per common share compared to book value per common share:


	As of June 30,						As of December 31,				As of September 30,						As of December 31,
(dollars in thousands, except per share data)	2022			2021			2021				2022			2021			2021
Tangible common equity
Equity attributable to Guaranty Bancshares, Inc.	$	282,255		$	287,729		$	302,214			$	288,084		$	297,408		$	302,214
Adjustments:
Goodwill		(32,160	)		(32,160	)		(32,160	)			(32,160	)		(32,160	)		(32,160	)
Core deposit intangible, net		(2,086	)		(2,573	)		(2,313	)			(1,973	)		(2,426	)		(2,313	)
Total tangible common equity attributable to Guaranty Bancshares, Inc.	$	248,009		$	252,996		$	267,741			$	253,951		$	262,822		$	267,741
Common shares outstanding(1)		11,912,249			12,057,937			12,122,717				11,915,372			12,081,477			12,122,717
Book value per common share	$	23.69		$	23.86		$	24.93			$	24.18		$	24.62		$	24.93
Tangible book value per common share		20.82			20.98			22.09				21.31			21.75			22.09

(1) Excludes the dilutive effect, if any, of 135,252, 168,311 and 146,576 shares of common stock issuable upon exercise of outstanding stock options as of June 30, 2022 and 2021, and December 31, 2021, respectively.
(1) Excludes the dilutive effect, if any, of 125,344, 155,058 and 146,576 shares of common stock issuable upon exercise of outstanding stock options as of September 30, 2022 and 2021, and December 31, 2021, respectively.										(1) Excludes the dilutive effect, if any, of 125,344, 155,058 and 146,576 shares of common stock issuable upon exercise of outstanding stock options as of September 30, 2022 and 2021, and December 31, 2021, respectively.

Tangible Common Equity to Tangible ~~Assets~~.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 equity attributable to Guaranty Bancshares, Inc. 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 equity attributable to Guaranty Bancshares, Inc. and assets while not increasing our tangible common equity or tangible assets.

The following table reconciles, as of the dates set forth below, total tangible common equity and total assets to tangible assets:


(dollars in thousands)	As of June 30, 2022			As of December 31, 2021			As of September 30, 2022			As of December 31, 2021
Total tangible common equity attributable to Guaranty Bancshares, Inc.	$	248,009		$	267,741		$	253,951		$	267,741
Tangible assets
Total assets		3,280,913			3,086,070			3,390,266			3,086,070
Adjustments:
Goodwill		(32,160	)		(32,160	)		(32,160	)		(32,160	)
Core deposit intangible, net		(2,086	)		(2,313	)		(1,973	)		(2,313	)
Total tangible assets	$	3,246,667		$	3,051,597		$	3,356,133		$	3,051,597

Total equity to total assets		8.60	%		9.79	%		8.50	%		9.79	%
Tangible common equity to tangible assets		7.64	%		8.77	%		7.57	%		8.77	%

(Continued)

65.

The following tables reconcile, as of and for the dates set forth below, net earnings, a GAAP measure, and net core earnings, a non-GAAP measure that excludes provisions for credit losses and income tax and net PPP income.

Net Core Earnings and Net Core Earnings per Common Share


	Six Months Ended June 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Three Months Ended June 30,
(dollars in thousands, except per share data)	2022			2021			2022			2021			2022			2021			2022
Net earnings attributable to Guaranty Bancshares, Inc.	$	21,522		$	21,394		$	32,425		$	30,647		$	10,903		$	9,253		$	10,784
Adjustments:
Reversal of provision for credit losses		(1,250	)		(1,000	)		(650	)		(1,700	)		600			(700	)		—
Income tax provision		4,707			4,648			7,070			6,827			2,363			2,179			2,472
PPP loans, including fees		(1,219	)		(5,859	)		(1,276	)		(6,864	)		(57	)		(1,005	)		(436	)
Net interest expense on PPP-related borrowings		—			—
Net core earnings attributable to Guaranty Bancshares, Inc.	$	23,760		$	19,183		$	37,569		$	28,910		$	13,809		$	9,727		$	12,820

Weighted-average common shares outstanding, basic		12,038,261			12,047,643			11,994,105			12,054,426			11,907,233			12,067,769			11,968,227
Earnings per common share, basic	$	1.79		$	1.78		$	2.70		$	2.54		$	0.92		$	0.77		$	0.90
Net core earnings attributable to Guaranty Bancshares, Inc. per common share, basic		1.97			1.59			3.13			2.40			1.16			0.81			1.07

Net Core Earnings to Average Assets, as Adjusted, and Average Equity


	Six Months Ended June 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Three Months Ended June 30,
(dollars in thousands)	2022			2021			2022			2021			2022			2021			2022
Net core earnings attributable to Guaranty Bancshares, Inc.	$	23,760		$	19,183		$	37,569		$	28,910		$	13,809		$	9,727		$	12,820
Total average assets		3,177,969			2,857,707			3,231,679			2,889,882			3,337,348			2,953,181			3,209,440
Adjustments:
PPP loans average balance		(22,794	)		(146,103	)		(15,581	)		(133,309	)		(1,159	)		(107,931	)		(8,885	)
Excess fed funds sold due to PPP-related borrowings		—			—
Total average assets, adjusted	$	3,155,175		$	2,711,604		$	3,216,098		$	2,756,573		$	3,336,189		$	2,845,250		$	3,200,555
Net core earnings attributable to Guaranty Bancshares, Inc. to average assets, as adjusted		1.52			1.43			1.56			1.40			1.64			1.36			1.61
Total average equity	$	296,220		$	281,730		$	294,395		$	286,228		$	290,806		$	295,076		$	291,312
Net core earnings attributable to Guaranty Bancshares, Inc. to average equity		16.18			13.73			17.06			13.50			18.84			13.08			17.65

Total Interest-Earning Assets, net of PPP Effects


	Quarter Ended June 30, 2022									Quarter Ended June 30, 2021										Quarter Ended September 30, 2022									Quarter Ended September 30, 2021
(dollars in thousands)	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			Average Outstanding Balance			Interest Earned/ Interest Paid			Average Yield/ Rate
Total interest-earning assets	$	3,020,390		$	29,120			3.87	%	$	2,769,054		$	25,284			3.66	%		$	3,149,502		$	32,476			4.09	%	$	2,780,081		$	25,235			3.60	%

Total loans		2,068,379			24,587			4.77			1,912,722			22,864			4.79				2,191,411			27,455			4.97			1,921,005			22,605			4.67
Adjustments:
PPP loan average balance and net fees(1)		(8,885	)		(436	)		19.68			(155,417	)		(1,747	)		4.51				(1,159	)		(57	)		19.51			(107,931	)		(1,005	)		3.69
Total loans, net of PPP effects		2,059,494			24,151			4.70			1,757,305			21,117			4.82				2,190,252			27,398			4.96			1,813,074			21,600			4.73

Total interest-earning assets, net of PPP effects	$	3,011,505		$	28,684			3.82	%	$	2,613,637		$	23,537			3.61	%		$	3,148,343		$	32,419			4.09	%	$	2,672,150		$	24,230			3.60	%

(1) Interest earned consists of interest income of $21,000 and $385,000, and net origination fees recognized in earnings of $415,000 and $1.4 million for the quarter ended June 30, 2022 and 2021, respectively.
(1) Interest earned consists of interest income of $4,000 and $270,000, and net origination fees recognized in earnings of $53,000 and $735,000 for the quarter ended September 30, 2022 and 2021, respectively.																			(1) Interest earned consists of interest income of $4,000 and $270,000, and net origination fees recognized in earnings of $53,000 and $735,000 for the quarter ended September 30, 2022 and 2021, respectively.

(Continued)

66.

Net Interest Income and Net Interest Margin, Net of PPP Effects


(dollars in thousands)		Quarter Ended June 30, 2022			Quarter Ended March 31, 2022			Quarter Ended June 30, 2021				Quarter Ended September 30, 2022			Quarter Ended June 30, 2022			Quarter Ended September 30, 2021
Net interest income		$	26,851		$	24,323		$	23,477			$	28,297		$	26,851		$	23,570
Adjustments:
PPP-related interest income			(21	)		(89	)		(385	)			(4	)		(21	)		(270	)
PPP-related net origination fees			(415	)		(694	)		(1,362	)			(53	)		(415	)		(735	)
Net interest income, net of PPP effects		$	26,415		$	23,540		$	21,730			$	28,240		$	26,415		$	22,565

Total average interest-earning assets		$	3,020,390		$	2,963,030		$	2,769,054			$	3,149,502		$	3,020,390		$	2,780,081
Total average interest-earning assets, net of PPP effects			3,011,505			2,926,310			2,613,637				3,148,343			3,011,505			2,672,150

Net interest margin(1)			3.57	%		3.33	%		3.40	%			3.56	%		3.57	%		3.36	%
Net interest margin, net of PPP effects(2)			3.52			3.26			3.33				3.56			3.52			3.35

Net interest income		$	26,851		$	24,323		$	23,477			$	28,297		$	26,851		$	23,570
Interest income tax adjustments			299			301			269				215			301			278
Net interest income, fully taxable equivalent ("FTE")		$	27,150		$	24,624		$	23,746			$	28,512		$	27,152		$	23,848
Net interest income, FTE, net of PPP effects			26,714			23,841			21,999				28,455			26,716			22,843

Net interest margin, FTE(3)			3.61	%		3.37	%		3.44	%			3.59	%		3.61	%		3.40	%
Net interest margin, FTE, net of PPP effects(4)			3.56			3.30			3.38				3.59			3.56			3.39

(1) Net interest margin is equal to net interest income divided by average interest-earning assets, annualized.	(1) Net interest margin is equal to net interest income divided by average interest-earning assets, annualized.										(1) Net interest margin is equal to net interest income divided by average interest-earning assets, annualized.
(2) Net interest margin is equal to net interest income, net of PPP effects, divided by average interest-earning assets, excluding average PPP loans, annualized. Taxes are not a part of this calculation.	(2) Net interest margin is equal to net interest income, net of PPP effects, divided by average interest-earning assets, excluding average PPP loans, annualized. Taxes are not a part of this calculation.										(2) Net interest margin is equal to net interest income, net of PPP effects, divided by average interest-earning assets, excluding average PPP loans, annualized. Taxes are not a part of this calculation.
(3) Net interest margin on a taxable equivalent basis is equal to net interest income adjusted for nontaxable income divided by average interest-earning assets, annualized, using a marginal tax rate of 21%.	(3) Net interest margin on a taxable equivalent basis is equal to net interest income adjusted for nontaxable income divided by average interest-earning assets, annualized, using a marginal tax rate of 21%.										(3) Net interest margin on a taxable equivalent basis is equal to net interest income adjusted for nontaxable income divided by average interest-earning assets, annualized, using a marginal tax rate of 21%.
(4) Net interest margin on a taxable equivalent basis is equal to net interest income, net of PPP effects, adjusted for nontaxable income divided by average interest-earning assets, excluding average PPP loans, annualized, using a marginal tax rate of 21%.	(4) Net interest margin on a taxable equivalent basis is equal to net interest income, net of PPP effects, adjusted for nontaxable income divided by average interest-earning assets, excluding average PPP loans, annualized, using a marginal tax rate of 21%.										(4) Net interest margin on a taxable equivalent basis is equal to net interest income, net of PPP effects, adjusted for nontaxable income divided by average interest-earning assets, excluding average PPP loans, annualized, using a marginal tax rate of 21%.

Efficiency Ratio, Net of PPP Effects


(dollars in thousands)		Quarter Ended June 30, 2022			Quarter Ended March 31, 2022			Quarter Ended June 30, 2021				Quarter Ended September 30, 2022			Quarter Ended June 30, 2022			Quarter Ended September 30, 2021
Total noninterest expense		$	19,694		$	19,079		$	17,703			$	20,237		$	19,694		$	19,287
Adjustments:
PPP-related deferred costs			—			—			207				—			—			—
Total noninterest expense, net of PPP effects		$	19,694		$	19,079		$	17,910			$	20,237		$	19,694		$	19,287

Net interest income			26,851			24,323			23,477				28,297			26,851			23,570
Adjustments:
PPP-related interest income													(4	)		(21	)		(270	)
PPP-related net origination fees													(53	)		(415	)		(735	)
Net interest income, net of PPP effects			26,415			23,540			21,730				28,240			26,415			22,565

Total noninterest income		$	6,081		$	6,479		$	5,970			$	5,803		$	6,081		$	6,449
Securities gains (losses)			—			—			—
Noninterest income, as adjusted		$	6,081		$	6,479		$	5,970

Efficiency ratio(1)			59.80	%		61.94	%		60.12	%			59.35	%		59.80	%		64.25	%
Efficiency ratio, net of PPP effects(2)			60.60			63.56			64.66				59.45			60.60			66.47

(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.	(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.										(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.	(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.										(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.

(Continued)

67.

ACL to Total Loans, Excluding PPP


(dollars in thousands)	As of June 30, 2022			As of March 31, 2022			As of June 30, 2021			As of September 30, 2022			As of June 30, 2022			As of September 30, 2021
Total loans	$	2,138,376		$	2,014,061		$	1,890,164		$	2,266,065		$	2,138,376		$	1,970,881
Adjustments:
PPP loans		(2,605	)		(19,302	)		(127,390	)		(576	)		(2,605	)		(75,304	)
Total loans, excluding PPP	$	2,135,771		$	1,994,759		$	1,762,774		$	2,265,489		$	2,135,771		$	1,895,577

Allowance for credit losses	$	28,997		$	29,096		$	31,548		$	29,235		$	28,997		$	30,621

Allowance for credit losses / period-end loans		1.36	%		1.44	%		1.67	%		1.29	%		1.36	%		1.55	%
Allowance for credit losses / period-end loans. excluding PPP		1.36			1.46			1.79			1.29			1.36			1.62

Loan Yield, Net of PPP Effects


	Quarter Ended June 30, 2022									Quarter Ended March 31, 2022									Quarter Ended September 30, 2022									Quarter Ended June 30, 2022
(dollars in thousands)	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			Average Outstanding Balance			Interest Earned/ Interest Paid			Average Yield/ Rate
Total loans	$	2,068,379		$	24,587			4.77	%	$	1,937,000		$	22,272			4.66	%	$	2,191,411		$	27,455			4.97	%	$	2,068,379		$	24,587			4.77	%
Adjustments:
PPP loans average balance and net fees		(8,885	)		(436	)		19.68			(36,720	)		(783	)		8.65			(1,159	)		(57	)		19.51			(8,885	)		(436	)		19.68
Total loans, net of PPP effects	$	2,059,494		$	24,151			4.70	%	$	1,900,280		$	21,489			4.59	%	$	2,190,252		$	27,398			4.96	%	$	2,059,494		$	24,151			4.70	%
Effect of removing PPP loans on loan yield								(0.07	%)								(0.07	%)								(0.01	%)								(0.07	%)


	Quarter Ended June 30, 2022									Quarter Ended June 30, 2021									Quarter Ended September 30, 2022									Quarter Ended September 30, 2021
(dollars in thousands)	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			Average Outstanding Balance			Interest Earned/ Interest Paid			Average Yield/ Rate
Total loans	$	2,068,379		$	24,587			4.77	%	$	1,912,722		$	22,864			4.79	%	$	2,191,411		$	27,455			4.97	%	$	1,921,005		$	22,605			4.67	%
Adjustments:
PPP loans average balance and net fees		(8,885	)		(436	)		19.68			(155,417	)		(1,747	)		4.51			(1,159	)		(57	)		19.51			(107,931	)		(1,005	)		3.69
Total loans, net of PPP effects	$	2,059,494		$	24,151			4.70	%	$	1,757,305		$	21,117			4.82	%	$	2,190,252		$	27,398			4.96	%	$	1,813,074		$	21,600			4.73	%
Effect of removing PPP loans on loan yield								(0.07	%)								0.03	%								(0.01	%)								0.06	%

Cautionary Notice Regarding Forward-Looking Statements

This Report, our other filings with the SEC, and other press releases, documents, reports and announcements that we make, issue or publish may contain statements that we believe are “forward-looking statements” within the meaning of section 27A of the Securities Act and section 21E of the Exchange Act. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance, including our future revenues, income, expenses, provision for taxes, effective tax rate, earnings per share and cash flows, our future capital expenditures and dividends, our future financial condition and changes therein, including changes in our loan portfolio and allowance for credit losses, our future capital structure or changes therein, the plan and objectives of management for future operations, our future or proposed acquisitions, the future or expected effect of acquisitions on our operations, results of the operations and financial condition, our future economic performance and the statements of the assumptions underlying any such statement. 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.

(Continued)

68.

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 Texas markets;

•

concentration of our business within our geographic areas of operation in Texas;

•

deterioration of our asset quality and higher loan charge-offs;

•

changes in the value of collateral securing our loans;

•

inaccuracies in the assumptions and estimate we make in establishing the allowance for credit losses reserve and other estimates;

•

changes in management personnel and our ability to attract, motivate and retain qualified personnel;

•

liquidity risks associated with our business;

•

interest rate risk associated with our business that could decrease net interest income;

•

our ability to maintain important deposit customer relationships and our reputation;

•

operational risks associated with our business;

•

volatility and direction of market interest rates;

•

change in regulatory requirements to maintain minimum capital levels;

•

increased competition in the financial services industry, particularly from regional and national institutions;

•

institution and outcome of litigation and other legal proceeding against us or to which we become subject;

•

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;

•

changes in the scope and cost of FDIC insurance and other coverage;

•

natural disasters and adverse weather, acts of terrorism (including cyberattacks), an outbreak of hostilities or public health outbreaks (such as COVID-19), or other international or domestic calamities, and other matters beyond our control;

•

risks that the financial institutions we may acquire or de novo branches we may open will not be integrated successfully, or the integrations may be more time consuming or costly than expected;

•

technology related changes are difficult to make or are more expensive than expected; and

•

the other factors that are described under the caption “Risk Factors” or referenced in this report, our Annual Report on Form 10-K for the year ended December 31, 2021, and other risks included in the Company’s filings with the SEC.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Report. 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company manages market risk, which, as a financial institution is primarily interest rate volatility, through the Asset-Liability Committee of the Bank, in accordance with policies approved by its board of directors. The Company uses an interest rate risk simulation model and shock analysis 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. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Interest Rate Sensitivity and Market Risk” herein for a discussion of how we manage market risk.

(Continued)

69.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures:

As of the end of the period covered by this Report, 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 Securities Exchange Act of 1934, as amended (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 such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended ~~June~~September 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. 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’s combined results of operations, financial condition or cash flows. However, one or more unfavorable outcomes in any claim or litigation against the Company could have a material adverse effect for the period in which they are resolved. In addition, regardless of their merits or their ultimate outcomes, such matters are costly, divert management’s attention and may materially adversely affect the Company’s reputation, even if resolved in the Company’s favor.

Item 1A. Risk Factors

In evaluating an investment in the Company’s common stock, investors should consider carefully, among other things, the risk factors previously disclosed under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, and other risks included in the Company’s filings with the SEC. The Company’s business could be harmed by any of these risks. The trading price of the Company’s common stock could decline due to any of these risks, and you may lose all or part of your investment. There have been no material changes in the Company’s risk factors from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On April 21, 2022, the Company announced the adoption of a new stock repurchase program that authorized the repurchase of up to 1,000,000 shares of the Company common stock. The stock repurchase program will be effective until the earlier of April 21, 2024, 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 the Company and its shareholders, subject to compliance with applicable laws and regulations, general market and economic conditions, the financial and regulatory condition of the Company, liquidity and other factors.

(Continued)

70.

The table below contains information regarding all shares repurchased by the Company during the periods indicated.

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

April, 2022

65,990

$
35.09

65,990

934,010

May, 2022

81,611

35.10

81,611

852,399

June, 2022

27,580

35.47

27,580

824,819

Total

175,181

$
35.16

175,181


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
July, 2022		8,135	$	35.80		8,135		816,684
August, 2022		11,072		35.72		11,072		805,612
September, 2022		—		—		—		805,612
Total		19,207	$	35.76		19,207

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits


Exhibit Number		Description of Exhibit

3.1		Amended and Restated Certificate of Formation of Guaranty Bancshares, Inc. (incorporated by reference to Exhibit 3.1 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed May 1, 2017).

3.2		Amended and Restated Bylaws of Guaranty Bancshares, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 filed April 6, 2017).

4.1		Specimen common stock certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 filed with the SEC on April 6, 2017).

		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.

31.1*		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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*
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)*

______________________________

* Filed with this Quarterly Report on Form 10-Q

** Furnished with this Quarterly Report on Form 10-Q

(Continued)

71.

SIGNATURES

Pursuant to the requirements of 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.


		GUARANTY BANCSHARES, INC.
		(Registrant)

Date: ~~August 5,~~November 4, 2022		/s/ Tyson T. Abston
		Tyson T. Abston
		Chairman of the Board & Chief Executive Officer

Date: ~~August 5,~~November 4, 2022		/s/ Clifton A. Payne
		Clifton A. Payne
		Chief Financial Officer & Director

72.



Texas	001-38087	75-1656431
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)
16475 Dallas Parkway, Suite 600 Addison, Texas		75001
(Address of Principal Executive Offices)		(Zip Code)


Title of each class	Trading symbol	Name of each exchange on which registered
Common Stock, par value $1.00 per share	GNTY	NASDAQ Global Select Market


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,					Nine Months Ended September 30,
	2022			2021			2022			2021			2022			2021		2022			2021
Net earnings	$	10,766		$	10,432		$	21,504		$	21,394		$	10,900		$	9,253	$	32,404		$	30,647
Other comprehensive loss:
Unrealized losses on securities, net of tax		(11,669	)		(687	)		(28,658	)		(2,922	)
Other comprehensive (loss) income:
Unrealized (losses) gains on securities, net of tax														(2,432	)		1,654		(31,090	)		(1,268	)

Unrealized gains (losses) on interest rate swaps:
Unrealized holding gains arising during the period		0			23			497			472			—			62		497			534
Reclassification of realized gains on interest rate swap termination from accumulated other comprehensive income		0			0			(685	)		0			—			466		(685	)		466
Unrealized gains (losses) on interest rate swaps		0			23			(188	)		472			—			528		(188	)		1,000

Total other comprehensive loss		(11,669	)		(664	)		(28,846	)		(2,450	)
Total other comprehensive (loss) income														(2,432	)		2,182		(31,278	)		(268	)

Comprehensive (loss) income		(903	)		9,768			(7,342	)		18,944
Comprehensive income														8,468			11,435		1,126			30,379
Less comprehensive loss attributable to noncontrolling interest		18			0			18			0			3			—		21			—
Comprehensive (loss) income attributable to Guaranty Bancshares, Inc.	$	(885	)	$	9,768		$	(7,324	)	$	18,944
Comprehensive income attributable to Guaranty Bancshares, Inc.													$	8,471		$	11,435	$	1,147		$	30,379


	For the Six Months Ended June 30,						For the Nine Months Ended September 30,
	2022			2021			2022			2021
Cash flows from operating activities
Net earnings	$	21,504		$	21,394		$	32,404		$	30,647
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation		2,146			2,210			3,180			3,294
Amortization		397			679			563			932
Deferred taxes		(3,742	)		(235	)		(4,315	)		(181	)
Premium amortization, net of discount accretion		2,914			2,200			4,211			3,291
Gain on sale of loans		(1,787	)		(2,642	)		(2,125	)		(4,401	)
Reversal of provision for credit losses		(1,250	)		(1,000	)		(650	)		(1,700	)
Origination of loans held for sale		(48,365	)		(60,289	)		(62,579	)		(84,944	)
Proceeds from loans held for sale		51,511			63,385			66,084			92,984
Write-down of other real estate and repossessed assets		0			4			19			6
Net (gain) loss on sale of premises, equipment, other real estate owned and other assets		(38	)		1			(923	)		16
Stock based compensation		321			329			485			512
Net change in accrued interest receivable and other assets		(1,983	)		(7,420	)		(8,509	)		(5,034	)
Net change in accrued interest payable and other liabilities		1,067			3,049			420			1,799
Net cash provided by operating activities	$	22,695		$	21,665		$	28,265		$	37,221

Cash flows from investing activities
Securities available for sale:
Purchases	$	(17,201	)	$	(112,178	)	$	(28,952	)	$	(125,826	)
Proceeds from maturities and principal repayments		24,465			40,437			31,248			63,264
Securities held to maturity:
Purchases		(1,033,052	)		0			(1,043,343	)		(7,797	)
Proceeds from maturities and principal repayments		607,338			0			696,450			938
Net originations of loans		(230,359	)		(23,984	)		(358,088	)		(105,333	)
Purchases of premises and equipment		(2,882	)		(1,409	)		(4,574	)		(1,912	)
Proceeds from BOLI death benefit		0			464			—			464
Proceeds from sale of premises, equipment, other real estate owned and other assets		77			155			1,853			319
Net cash used in investing activities	$	(651,614	)	$	(96,515	)	$	(705,406	)	$	(175,883	)


	For the Six Months Ended June 30,						For the Nine Months Ended September 30,
	2022			2021			2022			2021
Cash flows from financing activities
Net change in deposits	$	109,131		$	246,636		$	120,020		$	276,681
Net change in securities sold under agreements to repurchase		(6,280	)		(295	)		(6,559	)		(4,436	)
Proceeds from FHLB advances		124,000			80,000			325,000			120,000
Repayment of FHLB advances		(40,000	)		(140,101	)		(147,500	)		(181,601	)
Proceeds from line of credit		1,000			5,000			1,000			8,000
Repayment of line of credit		(6,000	)		(17,000	)		(6,000	)		(17,000	)
Proceeds from issuance of subordinated debt		34,336			0			34,402			—
Repayments of debentures		(3,093	)		0			(3,093	)		—
Purchase of treasury stock		(8,151	)		0			(8,838	)		—
Exercise of stock options		474			636			976			1,113
Cash dividends paid		(5,080	)		(4,599	)		(7,703	)		(7,011	)
Net cash provided by financing activities	$	200,337		$	170,277		$	301,705		$	195,746
Net change in cash and cash equivalents		(428,582	)		95,427			(375,436	)		57,084
Cash and cash equivalents at beginning of period		499,605			351,791			499,605			351,791
Cash and cash equivalents at end of period	$	71,023		$	447,218		$	124,169		$	408,875

Supplemental disclosures of cash flow information
Interest paid	$	3,312		$	4,068		$	7,307		$	5,743
Income taxes paid		4,400			6,850			7,100			7,850

Supplemental schedule of noncash investing and financing activities
Cash dividends accrued	$	2,623		$	2,412		$	2,621		$	2,416
Lease right of use assets obtained in exchange for lease liabilities		337			1,384			337			1,384
Available for sale securities transferred to held to maturity, net of unrealized loss of $13,186		106,157			0
Available for sale securities transferred to held to maturity, net of unrealized loss of $13,186								106,157			—
Transfer of loans to other real estate owned and repossessed assets		27			444			32			502
Contributions from noncontrolling interest		580			0			577			—
Stock dividend		0			35,947			—			35,947


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☒


	PART I — FINANCIAL INFORMATION	Page

Item 1.	Financial Statements – (Unaudited)	1
	Consolidated Balance Sheets as of ~~June~~September 30, 2022 and December 31, 2021	1
	Consolidated Statements of Earnings for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021	2
	Consolidated Statements of Comprehensive ~~(Loss)~~ Income for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021	3
	Consolidated Statements of Changes in Equity for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021	4
	Consolidated Statements of Cash Flows for the ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021	6
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	69
Item 4.	Controls and Procedures	70

	PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	70
Item 1A.	Risk Factors	70
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	70
Item 3.	Defaults Upon Senior Securities	71
Item 4.	Mine Safety Disclosures	71
Item 5.	Other Information	71
Item 6.	Exhibits	71

SIGNATURES		72


	(Unaudited)			(Audited)			(Unaudited)			(Audited)
	June 30, 2022			December 31, 2021			September 30, 2022			December 31, 2021
ASSETS
Cash and due from banks	$	56,545		$	42,979		$	48,010		$	42,979
Federal funds sold		2,425			431,975			71,875			431,975
Interest-bearing deposits		12,053			24,651			4,284			24,651
Total cash and cash equivalents		71,023			499,605			124,169			499,605
Securities available for sale		196,095			342,206			197,944			342,206
Securities held to maturity		713,390			184,263			633,386			184,263
Loans held for sale		2,770			4,129			2,749			4,129
Loans, net of allowance for credit losses of $28,997 and $30,433, respectively		2,107,658			1,876,076
Loans, net of allowance for credit losses of $29,235 and $30,433, respectively								2,234,782			1,876,076
Accrued interest receivable		10,144			8,901			10,111			8,901
Premises and equipment, net		54,437			53,470			54,212			53,470
Other real estate owned								5			—
Cash surrender value of life insurance		37,979			37,141			38,194			37,141
Core deposit intangible, net		2,086			2,313			1,973			2,313
Goodwill		32,160			32,160			32,160			32,160
Other assets		53,171			45,806			60,581			45,806
Total assets	$	3,280,913		$	3,086,070		$	3,390,266		$	3,086,070
LIABILITIES AND EQUITY
Liabilities
Deposits
Noninterest-bearing	$	1,105,756		$	1,014,518		$	1,141,184		$	1,014,518
Interest-bearing		1,673,865			1,656,309			1,649,326			1,656,309
Total deposits		2,779,621			2,670,827			2,790,510			2,670,827
Securities sold under agreements to repurchase		7,871			14,151			7,592			14,151
Accrued interest and other liabilities		28,033			26,568			27,384			26,568
Line of credit		0			5,000			—			5,000
Federal Home Loan Bank advances		131,500			47,500			225,000			47,500
Subordinated debt		51,053			19,810			51,119			19,810
Total liabilities		2,998,078			2,783,856			3,101,605			2,783,856
Commitments and contingencies (see Note 11)
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, 14,159,928 and 14,138,978 shares issued, and 11,912,249 and 12,122,717 shares outstanding, respectively		14,160			14,139
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, 14,182,258 and 14,138,978 shares issued, and 11,915,372 and 12,122,717 shares outstanding, respectively								14,182			14,139
Additional paid-in capital		226,318			225,544			226,962			225,544
Retained earnings		123,888			107,645			132,170			107,645
Treasury stock, 2,247,679 and 2,016,261 shares at cost		(59,570	)		(51,419	)
Treasury stock, 2,266,886 and 2,016,261 shares, respectively, at cost								(60,257	)		(51,419	)
Accumulated other comprehensive (loss) income		(22,541	)		6,305			(24,973	)		6,305
Equity attributable to Guaranty Bancshares, Inc.		282,255			302,214			288,084			302,214
Noncontrolling interest		580			0			577			—
Total equity		282,835			302,214			288,661			302,214
Total liabilities and equity	$	3,280,913		$	3,086,070		$	3,390,266		$	3,086,070


	Attributable to Guaranty Bancshares, Inc.																					Attributable to Guaranty Bancshares, Inc.
	Preferred Stock		Common Stock		Additional Paid-in Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interest			Total Equity			Preferred Stock		Common Stock		Additional Paid-in Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interest			Total Equity
For the Six Months Ended June 30, 2022
For the Nine Months Ended September 30, 2022
Balance at December 31, 2021	$	—	$	14,139	$	225,544	$	107,645		$	(51,419	)	$	6,305		$	—		$	302,214		$	—	$	14,139	$	225,544	$	107,645		$	(51,419	)	$	6,305		$	—		$	302,214
Net earnings		—		—		—		21,522			—			—			(18	)		21,504			—		—		—		32,425			—			—			(21	)		32,404
Other comprehensive loss		—		—		—		—			—			(28,846	)		—			(28,846	)		—		—		—		—			—			(31,278	)		—			(31,278	)
Contributions from noncontrolling interest		—		—		—		—			—			—			598			598			—		—		—		—			—			—			598			598
Exercise of stock options		—		21		453		—			—			—			—			474			—		43		933		—			—			—			—			976
Purchase of treasury stock		—		—		—		—			(8,151	)		—			—			(8,151	)		—		—		—		—			(8,838	)		—			—			(8,838	)
Stock based compensation		—		—		321		—			—			—			—			321			—		—		485		—			—			—			—			485
Cash dividends:
Common - $0.44 per share		—		—		—		(5,279	)		—			—			—			(5,279	)
Total equity at June 30, 2022	$	—	$	14,160	$	226,318	$	123,888		$	(59,570	)	$	(22,541	)	$	580		$	282,835
Common - $0.66 per share																							—		—		—		(7,900	)		—			—			—			(7,900	)
Total equity at September 30, 2022																						$	—	$	14,182	$	226,962	$	132,170		$	(60,257	)	$	(24,973	)	$	577		$	288,661

For the Three Months Ended June 30, 2022
Balance at March 31, 2022	$	—	$	14,139	$	225,700	$	115,727		$	(53,412	)	$	(10,872	)	$	598		$	291,880
For the Three Months Ended September 30, 2022
Balance at June 30, 2022																						$	—	$	14,160	$	226,318	$	123,888		$	(59,570	)	$	(22,541	)	$	580		$	282,835
Net earnings		—		—		—		10,784			—			—			(18	)		10,766			—		—		—		10,903			—			—			(3	)		10,900
Other comprehensive loss		—		—		—		—			—			(11,669	)		—			(11,669	)		—		—		—		—			—			(2,432	)		—			(2,432	)
Exercise of stock options		—		21		453		—			—			—			—			474			—		22		480		—			—			—			—			502
Purchase of treasury stock		—		—		—		—			(6,158	)		—			—			(6,158	)		—		—		—		—			(687	)		—			—			(687	)
Stock based compensation		—		—		165		—			—			—			—			165			—		—		164		—			—			—			—			164
Cash dividends:
Common - $0.22 per share		—		—		—		(2,623	)		—			—			—			(2,623	)
Total equity at June 30, 2022	$	—	$	14,160	$	226,318	$	123,888		$	(59,570	)	$	(22,541	)	$	580		$	282,835
Common - $0.22 per share																							—		—		—		(2,621	)		—			—			—			(2,621	)
Total equity at September 30, 2022																						$	—	$	14,182	$	226,962	$	132,170		$	(60,257	)	$	(24,973	)	$	577		$	288,661


June 30, 2022	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
September 30, 2022									Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for sale:
Corporate bonds	$	35,029	$	—	$	1,455	$	33,574	$	35,003	$	—	$	1,893	$	33,110
Municipal securities		9,500		10		62		9,448		9,487		33		103		9,417
Mortgage-backed securities		144,128		18		14,962		129,184		150,516		5		16,906		133,615
Collateralized mortgage obligations		25,256		17		1,384		23,889		23,484		6		1,688		21,802
Total available for sale	$	213,913	$	45	$	17,863	$	196,095	$	218,490	$	44	$	20,590	$	197,944

Held to maturity:
U.S. government agencies	$	9,066	$	—	$	1,181	$	7,885	$	9,103	$	—	$	1,277	$	7,826
Treasury securities		324,510		—		2,832		321,678		253,733		—		3,409		250,324
Municipal securities		196,262		518		8,446		188,334		192,101		86		10,162		182,025
Mortgage-backed securities		138,802		2		12,807		125,997		135,292		—		15,743		119,549
Collateralized mortgage obligations		44,750		—		6,147		38,603		43,157		—		7,037		36,120
Total held to maturity	$	713,390	$	520	$	31,413	$	682,497	$	633,386	$	86	$	37,628	$	595,844


	Less Than 12 Months					12 Months or Longer					Total					Less Than 12 Months					12 Months or Longer					Total
June 30, 2022	Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value
September 30, 2022																Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value
Available for sale:
Corporate bonds	$	(1,455	)	$	33,574	$	0		$	0	$	(1,455	)	$	33,574	$	(1,711	)	$	31,159	$	(182	)	$	1,951	$	(1,893	)	$	33,110
Municipal securities		(62	)		8,024		0			0		(62	)		8,024		(103	)		4,392		—			—		(103	)		4,392
Mortgage-backed securities		(12,272	)		113,242		(2,690	)		14,774		(14,962	)		128,016		(11,585	)		94,622		(5,321	)		26,174		(16,906	)		120,796
Collateralized mortgage obligations		(1,384	)		22,706		0			0		(1,384	)		22,706		(1,688	)		21,359		—			—		(1,688	)		21,359
Total available for sale	$	(15,173	)	$	177,546	$	(2,690	)	$	14,774	$	(17,863	)	$	192,320	$	(15,087	)	$	151,532	$	(5,503	)	$	28,125	$	(20,590	)	$	179,657

Held to maturity:
U.S. government agencies	$	(1,181	)	$	8,830	$	0		$	0	$	(1,181	)	$	8,830	$	(1,277	)	$	7,826	$	—		$	—	$	(1,277	)	$	7,826
Treasury securities		(2,832	)		321,678		0			0		(2,832	)		321,678		(3,409	)		250,324		—			—		(3,409	)		250,324
Municipal securities		(8,446	)		103,252		0			0		(8,446	)		103,252		(8,800	)		144,467		(1,362	)		3,171		(10,162	)		147,638
Mortgage-backed securities		(11,834	)		104,888		(973	)		5,627		(12,807	)		110,515		(12,393	)		102,475		(3,350	)		17,074		(15,743	)		119,549
Collateralized mortgage obligations		(6,147	)		43,104		0			0		(6,147	)		43,104		(7,037	)		36,120		—			—		(7,037	)		36,120
Total held to maturity	$	(30,440	)	$	581,752	$	(973	)	$	5,627	$	(31,413	)	$	587,379	$	(32,916	)	$	541,212	$	(4,712	)	$	20,245	$	(37,628	)	$	561,457


	Available for Sale				Held to Maturity				Available for Sale				Held to Maturity
June 30, 2022	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
September 30, 2022									Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due within one year	$	0	$	0	$	276,151	$	274,879	$	5,019	$	4,967	$	208,372	$	206,824
Due after one year through five years		17,279		16,826		162,627		160,856		10,100		9,743		107,637		105,615
Due after five years through ten years		27,250		26,196		62,262		58,025		26,285		24,833		67,053		62,297
Due after ten years		0		0		28,798		24,137		3,086		2,984		71,875		65,439
Mortgage-backed securities		144,128		129,184		138,802		125,997		150,516		133,615		135,292		119,549
Collateralized mortgage obligations		25,256		23,889		44,750		38,603		23,484		21,802		43,157		36,120
Total securities	$	213,913	$	196,095	$	713,390	$	682,497	$	218,490	$	197,944	$	633,386	$	595,844


Six Months Ended June 30, 2022	Commercial and industrial			Construction and development		Commercial real estate			Farmland		1-4 family residential		Multi-family residential		Consumer			Agricultural			Overdrafts			Total
Nine Months Ended September 30, 2022																											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	$	3,600		$	4,221	$	13,765		$	1,698	$	5,818	$	396	$	762		$	169		$	4		$	30,433		$	3,600		$	4,221	$	13,765		$	1,698	$	5,818	$	396	$	762		$	169		$	4		$	30,433
(Reversal of) provision for credit losses		462			27		(2,420	)		55		121		208		209			(8	)		96			(1,250	)		347			389		(2,121	)		141		158		50		229			(19	)		176			(650	)
Loans charged-off		(154	)		—		0			—		—		—		(36	)		—			(138	)		(328	)		(192	)		—		—			—		—		—		(313	)		—			(241	)		(746	)
Recoveries		45			0		1			—		30		—		23			—			43			142			62			—		1			—		30		—		40			—			65			198
Ending balance	$	3,953		$	4,248	$	11,346		$	1,753	$	5,969	$	604	$	958		$	161		$	5		$	28,997		$	3,817		$	4,610	$	11,645		$	1,839	$	6,006	$	446	$	718		$	150		$	4		$	29,235


Six Months Ended June 30, 2022	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Nine Months Ended September 30, 2022										Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at beginning of year		502,780		$	25.77		5.59	$	5,936		502,780		$	25.77		5.59	$	5,936
Granted		60,000			35.84						69,000			35.71
Exercised		(20,950	)		22.60						(43,280	)		22.56
Forfeited		(20,900	)		25.95						(29,920	)		27.21
Balance, June 30, 2022		520,930		$	27.05		5.62	$	4,815
Balance, September 30, 2022											498,580		$	27.34		5.62	$	3,725

Exercisable at end of period		289,920		$	24.52		4.07	$	3,401		283,910		$	24.96		4.20	$	2,733


Six Months Ended June 30, 2021	Commercial and industrial			Construction and development			Commercial real estate			Farmland		1-4 family residential			Multi-family residential		Consumer			Agricultural			Overdrafts			Total
Nine Months Ended September 30, 2021																													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	$	4,033		$	4,735		$	15,780		$	1,220	$	6,313		$	363	$	929		$	239		$	7		$	33,619		$	4,033		$	4,735		$	15,780		$	1,220	$	6,313		$	363	$	929		$	239		$	7		$	33,619
Provision for credit losses		(329	)		(914	)		167			19		(162	)		255		(34	)		(49	)		47			(1,000	)		(268	)		(774	)		(670	)		365		(559	)		213		(61	)		(73	)		127			(1,700	)
Loans charged-off		(238	)		0			(760	)		0		0			0		(76	)		0			(84	)		(1,158	)		(300	)		—			(816	)		—		—			—		(113	)		—			(173	)		(1,402	)
Recoveries		11			1			11			—		0			—		28			0			36			87			15			1			11			—		—			—		32			—			45			104
Ending balance	$	3,477		$	3,822		$	15,198		$	1,239	$	6,151		$	618	$	847		$	190		$	6		$	31,548		$	3,480		$	3,962		$	14,305		$	1,585	$	5,754		$	576	$	787		$	166		$	6		$	30,621


Year	Current Weighted Average Rate			Principal Due		Current Weighted Average Rate			Principal Due
2022		1.70	%	$	131,500		2.68	%	$	185,000
2023							3.91	%		40,000
				$	131,500				$	225,000


	Trust III		DCB Trust I
Formation date	July 25, 2006		March 29, 2007
Capital trust pass-through securities
Number of shares		2,000		5,000
Original liquidation value	$	2,000	$	5,000
Common securities liquidation value		62		155


	Trust III Debentures		DCB Trust I Debentures
Original amount	$	2,062	$	5,155
Maturity date	October 1, 2036		June 15, 2037
Interest due	Quarterly		Quarterly


Six Months Ended June 30, 2022	Number of Shares			Weighted-Average Grant Date Fair Value
Nine Months Ended September 30, 2022							Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		207,084		$	5.23			207,084		$	5.23
Granted		60,000			6.40			69,000			6.56
Vested		(29,694	)		(6.24	)		(46,014	)		(5.90	)
Forfeited		(6,380	)		(14.82	)		(15,400	)		(9.09	)
Balance, June 30, 2022		231,010		$	5.38
Balance, September 30, 2022								214,670		$	5.53


	June 30, 2022		June 30, 2021		September 30, 2022		September 30, 2021
Intrinsic value of options exercised	$	286	$	337	$	521	$	630
Cash received from options exercised		474		636		976		1,113
Weighted average fair value of options granted		6.40		5.67		6.56		5.82


Year Ended December 31,	Amount
2022	$	1,100
2023		2,166
2024		2,111
2025		1,942
2026		1,714
Thereafter		5,898
Total lease payments		14,931
Less: interest		(578	)
Present value of lease liabilities	$	14,353


December 31, 2021
Notional Amount		Pay Rate			Receive Rate	Effective Date	Maturity in Years		Unrealized Losses (Gains)
$	15,000		0.668	%	3 month LIBOR	3/18/2020		1.22		8
	15,000		0.790	%	3 month LIBOR	3/18/2020		3.22		(184	)
	10,000		0.530	%	3 month LIBOR	3/23/2020		1.23		(12	)


	Contract or Notional Amount				Contract or Notional Amount
	June 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Commitments to extend credit	$	489,737	$	405,269	$	529,373	$	405,269
Letters of credit		10,505		8,357		8,136		8,357


	Actual			Minimum Required For Capital Adequacy Purposes			Minimum Required Under Basel III (Including Buffer)			To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio	Amount		Ratio	Amount		Ratio	Amount		Ratio
June 30, 2022
Total capital to risk-weighted assets:
Consolidated	$	340,931	15.06%	$	181,117	8.00%	$	237,716	10.50%	n/a
Bank		337,604	14.92%		181,052	8.00%		237,631	10.50%	$	226,315	10.00%
Tier 1 capital to risk-weighted assets:
Consolidated		278,297	12.29%		135,838	6.00%		192,437	8.50%	n/a
Bank		309,306	13.67%		135,789	6.00%		192,368	8.50%		181,052	8.00%
Tier 1 capital to average assets:(1)
Consolidated		278,297	8.72%		127,594	4.00%		127,594	4.00%	n/a
Bank		309,306	9.68%		127,761	4.00%		127,761	4.00%		159,701	5.00%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		271,080	11.97%		101,878	4.50%		158,478	7.00%	n/a
Bank		309,306	13.67%		101,842	4.50%		158,421	7.00%		147,105	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.