UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~September 30,~~March 31, ~~2022~~2023


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

For the transition period from to .

Commission File Number: 001-38087

GUARANTY BANCSHARES, INC.

(Exact name of registrant as specified in its charter)



Texas	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)

(888) 572 - 9881

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


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

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.


Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☒☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒☐

Indicate by check mark whether the registrant 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 ~~November 2, 2022,~~May 3, 2023, there were ~~11,939,572~~11,800,776 outstanding shares of the registrant’s common stock, par value $1.00 per share.

GUARANTY BANCSHARES, INC.


	PART I — FINANCIAL INFORMATION	Page

Item 1.	Financial Statements – (Unaudited)	1
	Consolidated Balance Sheets as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022	1
	Consolidated Statements of Earnings for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	2
	Consolidated Statements of Comprehensive Income for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	3
	Consolidated Statements of Changes in Equity for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	4
	Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	65
	Notes to Consolidated Financial Statements	87
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3635
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	6962
Item 4.	Controls and Procedures	7062

	PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	7063
Item 1A.	Risk Factors	7063
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7063
Item 3.	Defaults Upon Senior Securities	7164
Item 4.	Mine Safety Disclosures	7164
Item 5.	Other Information	7164
Item 6.	Exhibits	7165

SIGNATURES		7266

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

GUARANTY BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)


	(Unaudited)			(Audited)			(Unaudited)			(Audited)
	September 30, 2022			December 31, 2021			March 31, 2023			December 31, 2022
ASSETS
Cash and due from banks	$	48,010		$	42,979		$	59,030		$	52,390
Federal funds sold		71,875			431,975			95,400			47,275
Interest-bearing deposits		4,284			24,651			3,695			6,802
Total cash and cash equivalents		124,169			499,605			158,125			106,467
Securities available for sale		197,944			342,206			173,744			188,927
Securities held to maturity		633,386			184,263			476,105			509,008
Loans held for sale		2,749			4,129			1,260			3,156
Loans, net of allowance for credit losses of $29,235 and $30,433, respectively		2,234,782			1,876,076
Loans, net of allowance for credit losses of $31,953 and $31,974, respectively								2,344,240			2,344,245
Accrued interest receivable		10,111			8,901			10,443			11,555
Premises and equipment, net		54,212			53,470			55,457			54,291
Other real estate owned		5			—			38			38
Cash surrender value of life insurance		38,194			37,141			38,619			38,404
Core deposit intangible, net		1,973			2,313			1,746			1,859
Goodwill		32,160			32,160			32,160			32,160
Other assets		60,581			45,806			64,350			61,385
Total assets	$	3,390,266		$	3,086,070		$	3,356,287		$	3,351,495
LIABILITIES AND EQUITY
Liabilities
Deposits
Noninterest-bearing	$	1,141,184		$	1,014,518		$	992,527		$	1,052,144
Interest-bearing		1,649,326			1,656,309			1,630,841			1,629,010
Total deposits		2,790,510			2,670,827			2,623,368			2,681,154
Securities sold under agreements to repurchase		7,592			14,151			13,338			7,221
Accrued interest and other liabilities		27,384			26,568			30,125			28,409
Line of credit		—			5,000
Federal Home Loan Bank advances		225,000			47,500
Subordinated debt		51,119			19,810
Federal Home Loan Bank advances and Federal Funds Purchased								340,000			290,000
Subordinated debt, net								49,186			49,153
Total liabilities		3,101,605			2,783,856			3,056,017			3,055,937
Commitments and contingencies (see Note 11)
Equity
Preferred stock, $5.00 par value, 15,000,000 shares authorized, no shares issued		—			—			—			—
Common stock, $1.00 par value, 50,000,000 shares authorized, 14,182,258 and 14,138,978 shares issued, and 11,915,372 and 12,122,717 shares outstanding, respectively		14,182			14,139
Common stock, $1.00 par value, 50,000,000 shares authorized, 14,217,952 and 14,208,558 shares issued, and 11,925,357 and 11,941,672 shares outstanding, respectively								14,218			14,209
Additional paid-in capital		226,962			225,544			228,091			227,727
Retained earnings		132,170			107,645			143,102			137,565
Treasury stock, 2,266,886 and 2,016,261 shares, respectively, at cost		(60,257	)		(51,419	)
Accumulated other comprehensive (loss) income		(24,973	)		6,305
Treasury stock, 2,292,595 and 2,266,886 shares, respectively, at cost								(61,001	)		(60,257	)
Accumulated other comprehensive loss								(24,710	)		(24,260	)
Equity attributable to Guaranty Bancshares, Inc.		288,084			302,214			299,700			294,984
Noncontrolling interest		577			—			570			574
Total equity		288,661			302,214			300,270			295,558
Total liabilities and equity	$	3,390,266		$	3,086,070		$	3,356,287		$	3,351,495

See accompanying notes to consolidated financial statements.

GUARANTY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)

(Dollars in thousands, except per share data)


	Three Months Ended September 30,					Nine Months Ended September 30,						Three Months Ended March 31,
	2022		2021			2022			2021			2023		2022
Interest income
Loans, including fees	$	27,455	$	22,605		$	74,314		$	69,664		$	32,157	$	22,272
Securities
Taxable		3,331		1,203			8,133			3,393			2,814		1,953
Nontaxable		1,324		1,050			3,764			3,142			1,304		1,150
Nonmarketable equity securities													419		408
Federal funds sold and interest-bearing deposits		366		377			1,278			833			450		110
Total interest income		32,476		25,235			87,489			77,032			37,144		25,893

Interest expense
Deposits		2,455		1,348			5,320			4,444			7,655		1,242
FHLB advances and federal funds purchased		1,211		107			1,447			308			3,774		46
Subordinated debt		509		182			1,208			558			540		246
Other borrowed money		4		28			43			184			13		36
Total interest expense		4,179		1,665			8,018			5,494			11,982		1,570

Net interest income		28,297		23,570			79,471			71,538			25,162		24,323
Provision for (reversal of) credit losses		600		(700	)		(650	)		(1,700	)		—		(1,250	)
Net interest income after provision for credit losses		27,697		24,270			80,121			73,238
Net interest income after provision for (reversal of) credit losses													25,162		25,573

Noninterest income
Service charges		1,146		1,003			3,192			2,687			1,077		976
Net realized gain on sales of securities available for sale													93		—
Net realized gain on sale of loans		338		1,759			2,125			4,401			314		905
Merchant and debit card fees		1,738		1,620			5,410			5,048			1,674		1,611
Other income		2,581		2,067			7,636			6,402			1,747		2,987
Total noninterest income		5,803		6,449			18,363			18,538			4,905		6,479

Noninterest expense
Employee compensation and benefits		11,851		10,998			35,113			31,145			12,264		11,532
Occupancy expenses		2,800		2,738			8,359			8,258			2,830		2,711
Other expenses		5,586		5,551			15,538			14,899			4,873		4,836
Total noninterest expense		20,237		19,287			59,010			54,302			19,967		19,079

Income before income taxes		13,263		11,432			39,474			37,474			10,100		12,973
Income tax provision		2,363		2,179			7,070			6,827			1,823		2,235
Net earnings	$	10,900	$	9,253		$	32,404		$	30,647		$	8,277	$	10,738
Net loss attributable to noncontrolling interest		3		—			21			—			4		—
Net earnings attributable to Guaranty Bancshares, Inc.	$	10,903	$	9,253		$	32,425		$	30,647		$	8,281	$	10,738
Basic earnings per share	$	0.92	$	0.77		$	2.70		$	2.54		$	0.69	$	0.89
Diluted earnings per share	$	0.91	$	0.76		$	2.68		$	2.51		$	0.69	$	0.88

See accompanying notes to consolidated financial statements.

GUARANTY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(Dollars in thousands)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2022

2021

2022

2021

Net earnings

$
10,900

$
9,253

$
32,404

$
30,647

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

—

62

497

534

Reclassification of realized gains on interest rate swap termination from accumulated other comprehensive income

—

466

(685
)

466

Unrealized gains (losses) on interest rate swaps

—

528

(188
)

1,000

Total other comprehensive (loss) income

(2,432
)

2,182

(31,278
)

(268
)

Comprehensive income

8,468

11,435

1,126

30,379

Less comprehensive loss attributable to noncontrolling interest

3

—

21

—

Comprehensive income attributable to Guaranty Bancshares, Inc.

$
8,471

$
11,435

$
1,147

$
30,379


	Three Months Ended March 31,
	2023			2022
Net earnings	$	8,277		$	10,738
Other comprehensive loss:
Unrealized losses on securities:
Unrealized holding losses arising during the period, net of tax	$	(37	)	$	(16,213	)
Reclassification adjustment for net gains included in net earnings, net of tax		(73	)		—
Amortization of net unrealized losses on held to maturity securities		(340	)		(776	)
Unrealized losses on securities, net of tax		(450	)		(16,989	)

Unrealized losses on interest rate swaps:
Unrealized holding gains arising during the period		—			497
Reclassification of realized gains on interest rate swap termination from accumulated other comprehensive income		—			(685	)
Unrealized losses on interest rate swaps		—			(188	)

Total other comprehensive loss		(450	)		(17,177	)

Comprehensive income (loss)		7,827			(6,439	)
Less comprehensive loss attributable to noncontrolling interest		4			—
Comprehensive income (loss) attributable to Guaranty Bancshares, Inc.	$	7,831		$	(6,439	)

See accompanying notes to consolidated financial statements.

GUARANTY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited)

(Dollars in thousands, except per share data)


	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 Loss			Noncontrolling Interest			Total Equity
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
Net earnings		—		—		—		32,425			—			—			(21	)		32,404
Other comprehensive loss		—		—		—		—			—			(31,278	)		—			(31,278	)
Contributions from noncontrolling interest		—		—		—		—			—			—			598			598
Exercise of stock options		—		43		933		—			—			—			—			976
Purchase of treasury stock		—		—		—		—			(8,838	)		—			—			(8,838	)
Stock based compensation		—		—		485		—			—			—			—			485
Cash dividends:
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 September 30, 2022
Balance at June 30, 2022	$	—	$	14,160	$	226,318	$	123,888		$	(59,570	)	$	(22,541	)	$	580		$	282,835
For the Three Months Ended March 31, 2023
Balance at December 31, 2022																						$	—	$	14,209	$	227,727		$	137,565		$	(60,257	)	$	(24,260	)	$	574		$	295,558
Net earnings		—		—		—		10,903			—			—			(3	)		10,900			—		—		—			8,281			—			—			(4	)		8,277
Other comprehensive loss		—		—		—		—			—			(2,432	)		—			(2,432	)		—		—		—			—			—			(450	)		—			(450	)
Exercise of stock options		—		22		480		—			—			—			—			502			—		8		217			—			—			—			—			225
Purchase of treasury stock		—		—		—		—			(687	)		—			—			(687	)		—		—		—			—			(744	)		—			—			(744	)
Restricted stock grants																							—		1		(1	)		—			—			—			—			—
Stock based compensation		—		—		164		—			—			—			—			164			—		—		148			—			—			—			—			148
Cash dividends:
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
Common - $0.23 per share																							—		—		—			(2,744	)		—			—			—			(2,744	)
Total equity at March 31, 2023																						$	—	$	14,218	$	228,091		$	143,102		$	(61,001	)	$	(24,710	)	$	570		$	300,270


	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
For the Three Months Ended March 31, 2022
Balance at December 31, 2021	$	—	$	14,139	$	225,544	$	107,645		$	(51,419	)	$	6,305		$	—	$	302,214
Net earnings		—		—		—		10,738			—			—			—		10,738
Other comprehensive loss		—		—		—		—			—			(17,177	)		—		(17,177	)
Purchase of treasury stock		—		—		—		—			(1,993	)		—			—		(1,993	)
Stock based compensation		—		—		156		—			—			—			—		156
Cash dividends:
Common - $0.22 per share		—		—		—		(2,656	)		—			—			—		(2,656	)
Equity attributable to Guaranty Bancshares, Inc. at March 31, 2022	$	—	$	14,139	$	225,700	$	115,727		$	(53,412	)	$	(10,872	)	$	—	$	291,282
Contributions from noncontrolling interest		—		—		—		—			—			—			598		598
Total equity at March 31, 2022	$	—	$	14,139	$	225,700	$	115,727		$	(53,412	)	$	(10,872	)	$	598	$	291,880

See accompanying notes to consolidated financial statements.

~~GUARANTY BANCSHARES, INC.~~

~~CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited)~~

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

Preferred
Stock

Common
Stock

Additional
Paid-in
Capital

Retained
Earnings

Treasury
Stock

Accumulated
Other
Comprehensive
Income

Total
Shareholders’
Equity

For the Nine Months Ended September 30, 2021

Balance at December 31, 2020

$
—

$
12,952

$
188,032

$
113,449

$
(51,419
)

$
9,629

$
272,643

Net earnings

—

—

—

30,647

—

—

30,647

Other comprehensive loss

—

—

—

—

—

(268
)

(268
)
10% stock dividend

—

1,094

34,853

(35,947
)

—

—

—

Exercise of stock options

—

48

1,065

—

—

—

1,113

Restricted stock grants

—

4

(4
)

—

—

—

—

Stock based compensation

—

—

512

—

—

—

512

Cash dividends:

Common - $0.60 per share

—

—

—

(7,239
)

—

—

(7,239
)
Balance at September 30, 2021

$
—

$
14,098

$
224,458

$
100,910

$
(51,419
)

$
9,361

$
297,408

For the Three Months Ended September 30, 2021

Balance at June 30, 2021

$
—

$
14,074

$
223,822

$
94,073

$
(51,419
)

$
7,179

$
287,729

Net earnings

—

—

—

9,253

—

—

9,253

Other comprehensive income

—

—

—

—

—

2,182

2,182

Exercise of stock options

—

20

457

—

—

—

477

Restricted stock grants

—

4

(4
)

—

—

—

—

Stock based compensation

—

—

183

—

—

—

183

Dividends:

Common - $0.20 per share

—

—

—

(2,416
)

—

—

(2,416
)
Balance at September 30, 2021

$
—

$
14,098

$
224,458

$
100,910

$
(51,419
)

$
9,361

$
297,408

~~See accompanying notes to consolidated financial statements.~~

GUARANTY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)


	For the Nine Months Ended September 30,						For the Three Months Ended March 31,
	2022			2021			2023			2022
Cash flows from operating activities
Net earnings	$	32,404		$	30,647		$	8,277		$	10,738
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation		3,180			3,294			1,018			1,069
Amortization		563			932			194			219
Deferred taxes		(4,315	)		(181	)		(1,157	)		(4,188	)
Premium amortization, net of discount accretion		4,211			3,291			760			1,399
Net realized gain on sales of securities available for sale								(93	)		—
Gain on sale of loans		(2,125	)		(4,401	)		(314	)		(905	)
Reversal of provision for credit losses		(650	)		(1,700	)
Provision for (reversal of) credit losses								—			(1,250	)
Origination of loans held for sale		(62,579	)		(84,944	)		(10,488	)		(25,758	)
Proceeds from loans held for sale		66,084			92,984			12,698			29,626
Write-down of other real estate and repossessed assets		19			6
Net (gain) loss on sale of premises, equipment, other real estate owned and other assets		(923	)		16
Net gain on sale of premises, equipment, other real estate owned and other assets								—			(39	)
Stock based compensation		485			512			148			156
Net change in accrued interest receivable and other assets		(8,509	)		(5,034	)		(930	)		6,792
Net change in accrued interest payable and other liabilities		420			1,799			1,599			804
Net cash provided by operating activities	$	28,265		$	37,221		$	11,712		$	18,663

Cash flows from investing activities
Securities available for sale:
Purchases	$	(28,952	)	$	(125,826	)
Proceeds from sales							$	7,239		$	—
Proceeds from maturities and principal repayments		31,248			63,264			7,396			14,431
Securities held to maturity:
Purchases		(1,043,343	)		(7,797	)		—			(915,587	)
Proceeds from maturities and principal repayments		696,450			938			32,305			603,937
Net originations of loans		(358,088	)		(105,333	)		5			(106,123	)
Purchases of premises and equipment		(4,574	)		(1,912	)		(2,184	)		(1,685	)
Proceeds from BOLI death benefit		—			464
Proceeds from sale of premises, equipment, other real estate owned and other assets		1,853			319			—			72
Net cash used in investing activities	$	(705,406	)	$	(175,883	)
Net cash provided by (used in) investing activities							$	44,761		$	(404,955	)

See accompanying notes to consolidated financial statements.

6.5.

GUARANTY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)


	For the Nine Months Ended September 30,						For the Three Months Ended March 31,
	2022			2021			2023			2022
Cash flows from financing activities
Net change in deposits	$	120,020		$	276,681		$	(57,786	)	$	126,920
Net change in securities sold under agreements to repurchase		(6,559	)		(4,436	)		6,117			(3,061	)
Proceeds from FHLB advances		325,000			120,000			1,585,000			—
Repayment of FHLB advances		(147,500	)		(181,601	)		(1,535,000	)		(40,000	)
Proceeds from line of credit		1,000			8,000			—			1,000
Repayment of line of credit		(6,000	)		(17,000	)		—			(6,000	)
Proceeds from issuance of subordinated debt		34,402			—			—			34,336
Repayments of debentures		(3,093	)		—
Purchase of treasury stock		(8,838	)		—			(744	)		(1,993	)
Exercise of stock options		976			1,113			225			—
Cash dividends paid		(7,703	)		(7,011	)		(2,627	)		(2,424	)
Net cash provided by financing activities	$	301,705		$	195,746
Net cash (used in) provided by financing activities							$	(4,815	)	$	108,778
Net change in cash and cash equivalents		(375,436	)		57,084			51,658			(277,514	)
Cash and cash equivalents at beginning of period		499,605			351,791			106,467			499,605
Cash and cash equivalents at end of period	$	124,169		$	408,875		$	158,125		$	222,091

Supplemental disclosures of cash flow information
Interest paid	$	7,307		$	5,743		$	10,467		$	1,460
Income taxes paid		7,100			7,850

Supplemental schedule of noncash investing and financing activities
Cash dividends accrued	$	2,621		$	2,416		$	2,744		$	2,656
Lease right of use assets obtained in exchange for lease liabilities		337			1,384			568			—
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		32			502
Contributions from noncontrolling interest		577			—			—			598
Stock dividend		—			35,947

See accompanying notes to consolidated financial statements.

7.6.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations: Guaranty Bancshares, Inc. (“Guaranty”) is a bank holding company headquartered in Mount Pleasant, Texas that provides, through its wholly-owned subsidiary, Guaranty Bank & Trust, N.A. (the “Bank”), a broad array of financial products and services to individuals and corporate customers, primarily in its markets of East Texas, Dallas/Fort Worth, Greater Houston and Central Texas. The terms “the Company,” “we,” “us” and “our” mean Guaranty and its subsidiaries, when appropriate. The Company’s main sources of income are derived from granting loans throughout its markets and investing in securities issued or guaranteed by the U.S. Treasury, U.S. government agencies and state and political subdivisions. The Company’s primary lending products are real estate, commercial and consumer loans. Although the Company has a diversified loan portfolio, a substantial portion of its debtors’ abilities to honor contracts is dependent on the economy of the State of Texas and primarily the economies of East Texas, Dallas/Fort Worth, Greater Houston and Central Texas. The Company primarily funds its lending activities with deposit operations. The Company’s primary deposit products are checking accounts, money market accounts and certificates of deposit.

Principles of Consolidation: The consolidated financial statements in this Quarterly Report on Form 10-Q (this “Report”) include the accounts of Guaranty, the Bank and indirect subsidiaries that are wholly-owned or controlled. Subsidiaries that are less than wholly owned are fully consolidated if they are controlled by Guaranty or one of its subsidiaries, and the portion of any subsidiary not owned by Guaranty is reported as noncontrolling interest. All significant intercompany balances and transactions have been eliminated in consolidation. The Bank has ~~seven~~eight wholly-owned or controlled non-bank subsidiaries, Guaranty Company, Inc., G B COM, INC., 2800 South Texas Avenue LLC, Pin Oak Realty Holdings, Inc., Pin Oak Asset Management, LLC, Guaranty Bank & Trust Political Action Committee, White Oak Aviation, LLC and Caliber Guaranty Private Account, LLC, the entity which has a noncontrolling interest. The accounting and financial reporting policies followed by the Company conform, in all material respects, to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within the financial services industry.

Basis of Presentation: The consolidated financial statements in this report have not been audited by an independent registered public accounting firm, but in the opinion of management, reflect all adjustments necessary for a fair presentation of the Company’s financial position and results of operations. All such adjustments were of a normal and recurring nature. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s consolidated financial statements, and notes thereto, for the year ended December 31, ~~2021,~~2022, included in Guaranty’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

All dollar amounts referenced and discussed in the notes to the consolidated financial statements in this report are presented in thousands, unless noted otherwise.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions may also affect disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Recent Accounting Pronouncements: In March 2022, the ~~Financial Accounting Standards Board ("FASB")~~FASB issued ~~Accounting Standards Update ("ASU")~~ASU 2022-02, ~~"Financial~~Financial Instruments - Credit Losses (Topic 326),: Troubled Debt Restructurings and Vintage ~~Disclosures" ("ASU 2022-02"). ASU 2022-02~~Disclosures, which eliminates the ~~current~~recognition and measurement guidance onfor troubled debt restructurings ("TDRs"), by creditors in ASC 310-40. The update also enhances ~~current and introduces new~~ disclosure requirements ~~related~~for certain loan restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs, an entity will apply the loan refinancing and restructuring guidance to determine whether a modification or other form of restructuring results in a new loan ~~modifications.~~or a continuation of an existing loan. Finally, the amendments in this ASU ~~2022-02 is effective~~require a public business entity to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases in the ~~Company for fiscal years beginning after December 15, 2022.~~existing vintage disclosures. The Company ~~has the option to early adopt, and is in the process of evaluating the impact~~adopted this ASU ~~will~~effective on January 1, 2023, and used the modified retrospective method, which did not have a significant impact on its consolidated financial ~~statements and related disclosures.~~statements. The new modification disclosure

(Continued)

8.7.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

requirements are applied on a prospective basis.

NOTE 2 - MARKETABLE SECURITIES

The following tables summarize the amortized cost and fair value of available for sale and held to maturity securities as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 and the corresponding amounts of gross unrealized gains and losses:


September 30, 2022	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
March 31, 2023									Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for sale:
Corporate bonds	$	35,003	$	—	$	1,893	$	33,110	$	29,943	$	—	$	2,302	$	27,641
Municipal securities		9,487		33		103		9,417		3,186		216		—		3,402
Mortgage-backed securities		150,516		5		16,906		133,615		139,187		—		15,609		123,578
Collateralized mortgage obligations		23,484		6		1,688		21,802		20,805		3		1,685		19,123
Total available for sale	$	218,490	$	44	$	20,590	$	197,944	$	193,121	$	219	$	19,596	$	173,744

Held to maturity:
U.S. government agencies	$	9,103	$	—	$	1,277	$	7,826	$	9,178	$	—	$	1,166	$	8,012
Treasury securities		253,733		—		3,409		250,324		113,939		—		1,915		112,024
Municipal securities		192,101		86		10,162		182,025		181,986		670		7,575		175,081
Mortgage-backed securities		135,292		—		15,743		119,549		130,138		—		14,726		115,412
Collateralized mortgage obligations		43,157		—		7,037		36,120		40,864		—		7,089		33,775
Total held to maturity	$	633,386	$	86	$	37,628	$	595,844	$	476,105	$	670	$	32,471	$	444,304


December 31, 2021	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
December 31, 2022									Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for sale:
U.S. government agencies	$	10,013	$	—	$	42	$	9,971
Corporate bonds		35,080		940		85		35,935	$	29,964	$	—	$	2,177	$	27,787
Municipal securities										10,324		326		8		10,642
Mortgage-backed securities		221,610		1,477		1,779		221,308		145,896		1		15,556		130,341
Collateralized mortgage obligations		74,925		971		904		74,992		21,981		3		1,827		20,157
Total available for sale	$	341,628	$	3,388	$	2,810	$	342,206	$	208,165	$	330	$	19,568	$	188,927

Held to maturity:
U.S. government agencies									$	9,141	$	—	$	1,259	$	7,882
Treasury securities										133,735		—		2,921		130,814
Municipal securities	$	181,310	$	8,364	$	118	$	189,556		191,680		658		8,285		184,053
Mortgage-backed securities		2,953		—		37		2,916		132,693		—		14,708		117,985
Collateralized mortgage obligations										41,759		—		7,425		34,334
Total held to maturity	$	184,263	$	8,364	$	155	$	192,472	$	509,008	$	658	$	34,598	$	475,068

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 orand losses at the date of transfer ~~create a premium or discount, respectively,~~are retained in other comprehensive loss and in the carrying value of ~~which is retained in securities~~the held to maturity securities and ~~other comprehensive income and~~are amortized or accreted ~~respectively,~~ over the remaining life of the ~~underlying securities as an adjustment of yield.~~security. During the second quarter of 2022, we transferred $106,157 of securities from available for sale to held to maturity, which included a net unrealized loss on the date of transfer of $13,186. ~~The~~During the third quarter of 2021, we transferred $172,292 of securities from available for sale to held to maturity, which included a net unrealized gain on the date of transfer of $10,235. These unamortized unrealized ~~loss remaining~~losses and unaccreted unrealized gains on our transferred securities are included in accumulated other comprehensive loss ~~in the accompanying~~on our balance ~~sheets totaled~~sheet and they netted to an unrealized loss of $~~5,540~~6,201 at ~~September 30, 2022,~~March 31, 2023 compared to ~~a net unamortized,~~an unrealized ~~gain~~loss of $~~8,860~~5,861 at December 31, ~~2021.~~2022. This amount will continue to be amortized and accreted out of accumulated other comprehensive ~~loss~~(loss) income over the remaining life of the underlying securities as an adjustment of the yield on those securities.

There is no allowance for credit losses recorded for our available for sale or held to maturity debt securities as of ~~September 30, 2022~~March 31, 2023 or December 31, ~~2021.~~2022.

(Continued)

9.8.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

Information pertaining to securities with gross unrealized losses as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, for which no allowance for credit losses has been recorded, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position is detailed in the following tables:


	Less Than 12 Months					12 Months or Longer					Total					Less Than 12 Months					12 Months or Longer					Total
September 30, 2022	Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value
March 31, 2023																Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value
Available for sale:
Corporate bonds	$	(1,711	)	$	31,159	$	(182	)	$	1,951	$	(1,893	)	$	33,110	$	(550	)	$	8,975	$	(1,752	)	$	18,666	$	(2,302	)	$	27,641
Municipal securities		(103	)		4,392		—			—		(103	)		4,392
Mortgage-backed securities		(11,585	)		94,622		(5,321	)		26,174		(16,906	)		120,796		(441	)		17,739		(15,168	)		105,836		(15,609	)		123,575
Collateralized mortgage obligations		(1,688	)		21,359		—			—		(1,688	)		21,359		(124	)		5,037		(1,561	)		13,927		(1,685	)		18,964
Total available for sale	$	(15,087	)	$	151,532	$	(5,503	)	$	28,125	$	(20,590	)	$	179,657	$	(1,115	)	$	31,751	$	(18,481	)	$	138,429	$	(19,596	)	$	170,180

Held to maturity:
U.S. government agencies	$	(1,277	)	$	7,826	$	—		$	—	$	(1,277	)	$	7,826	$	—		$	—	$	(1,166	)	$	8,012	$	(1,166	)	$	8,012
Treasury securities		(3,409	)		250,324		—			—		(3,409	)		250,324		(1,915	)		112,024		—			—		(1,915	)		112,024
Municipal securities		(8,800	)		144,467		(1,362	)		3,171		(10,162	)		147,638		(1,543	)		88,278		(6,032	)		37,920		(7,575	)		126,198
Mortgage-backed securities		(12,393	)		102,475		(3,350	)		17,074		(15,743	)		119,549		(2,851	)		47,028		(11,875	)		68,384		(14,726	)		115,412
Collateralized mortgage obligations		(7,037	)		36,120		—			—		(7,037	)		36,120		(384	)		4,706		(6,705	)		29,069		(7,089	)		33,775
Total held to maturity	$	(32,916	)	$	541,212	$	(4,712	)	$	20,245	$	(37,628	)	$	561,457	$	(6,693	)	$	252,036	$	(25,778	)	$	143,385	$	(32,471	)	$	395,421


	Less Than 12 Months					12 Months or Longer					Total					Less Than 12 Months					12 Months or Longer					Total
December 31, 2021	Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value
December 31, 2022																Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value
Available for sale:
U.S. government agencies	$	(42	)	$	9,971	$	—		$	—	$	(42	)	$	9,971
Corporate bonds		(85	)		11,418		—			—		(85	)		11,418	$	(1,518	)	$	20,323	$	(659	)	$	7,464		(2,177	)		27,787
Municipal securities																	(8	)		1,659		—			—		(8	)		1,659
Mortgage-backed securities		(1,383	)		144,367		(396	)		11,317		(1,779	)		155,684		(6,150	)		74,146		(9,406	)		55,826		(15,556	)		129,972
Collateralized mortgage obligations		(904	)		40,172		—			—		(904	)		40,172		(908	)		16,575		(919	)		3,411		(1,827	)		19,986
Total available for sale	$	(2,414	)	$	205,928	$	(396	)	$	11,317	$	(2,810	)	$	217,245	$	(8,584	)	$	112,703	$	(10,984	)	$	66,701	$	(19,568	)	$	179,404

Held to maturity:
U.S. government agencies																$	(1,259	)	$	7,882	$	—		$	—	$	(1,259	)	$	7,882
Treasury securities																	(2,921	)		130,814		—			—		(2,921	)		130,814
Municipal securities	$	(37	)	$	7,772	$	(81	)	$	2,996	$	(118	)	$	10,768		(7,071	)		118,117		(1,214	)		3,701		(8,285	)		121,818
Mortgage-backed securities		(37	)		2,916		—			—		(37	)		2,916		(8,355	)		80,556		(6,353	)		37,429		(14,708	)		117,985
Collateralized mortgage obligations																	(1,031	)		10,750		(6,394	)		23,584		(7,425	)		34,334
Total held to maturity	$	(74	)	$	10,688	$	(81	)	$	2,996	$	(155	)	$	13,684	$	(20,637	)	$	348,119	$	(13,961	)	$	64,714	$	(34,598	)	$	412,833

There were ~~311~~278 investments in an unrealized loss position at March 31, 2023, of which 8283 were available for sale debt securities in an unrealized loss position with no recorded allowance for credit ~~losses as of September 30, 2022.~~losses. The available for sale securities in a loss position were composed of U.S. government agencies, corporate bonds, ~~municipal securities,~~ collateralized mortgage obligations and mortgage-backed securities.Management evaluates available for sale debt securities in an unrealized loss position to determine whether the impairment is due to credit-related factors or noncredit-related factors. With respect to the collateralized mortgage obligations and mortgage-backed securities issued by the U.S. ~~Government~~government and its agencies, the Company has determined that a decline in fair value is not due to credit-related factors. The Company monitors the credit quality of other debt securities through the use of credit ratings and other factors specific to an individual security in assessing whether or not the decline in fair value of municipal or corporate securities, relative to their amortized cost, is due to credit-related factors. Triggers to prompt further investigation of securities when the fair value is less than the amortized cost are when a security has been downgraded and falls below an A credit rating, and the security’s unrealized loss exceeds 20% of its book value. Consideration is given to (1) the extent to which fair value is less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value. Based on evaluation of available evidence, management believes the unrealized losses on the securities as of ~~September 30,~~March 31, 2023 and 2022 are not credit-related. Management does not have the intent to sell any of these securities and believes that it is more likely than not the Company will not have to sell any such securities before recovery of cost. The fair values are expected to recover as the securities

(Continued)

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

approach their maturity date or repricing date or if market yields for the investments decline. Accordingly, no allowance for credit losses has been recorded for these securities.

~~(Continued)~~

~~10.~~

~~GUARANTY BANCSHARES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

Management assesses held to maturity securities sharing similar risk characteristics on a collective basis for expected credit losses under CECL. As of ~~September 30,~~March 31, 2023 and December 31, 2022, our held to maturity securities consisted of U.S. government agencies, municipal bonds, treasury securities and mortgage-backed securities issued by the U.S. ~~Government~~government and its agencies. With regard to the treasuries, collateralized mortgage obligations and mortgage-backed securities issued by the U.S. government, 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. For municipal securities, management reviewed key risk indicators, including ratings by credit agencies when available, and determined that there is no current expectation of credit loss. Accordingly, no allowance for credit losses has been recorded for these securities.

Mortgage-backed securities and collateralized mortgage obligations are backed by pools of mortgages that are insured or guaranteed by the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association or the Government National Mortgage Association.

As of ~~September 30, 2022,~~March 31, 2023, there were no holdings of securities of any one issuer, other than the collateralized mortgage obligations, treasuries and mortgage-backed securities issued by the U.S. government and its agencies, in an amount greater than 10% of total equity attributable to Guaranty Bancshares, Inc.

Securities with fair values of approximately $~~354,200~~348,750 and $~~310,958~~396,584 at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively, were pledged to secure public fund deposits and for other purposes as required or permitted by law.

~~There were~~ noThe proceeds from sales of available for sale securities ~~sold during~~and the ~~nine months ended September 30, 2022 or 2021.~~associated gains and losses are listed below for the:


	Three Months Ended March 31,
	2023			2022
Proceeds from sales	$	7,239		$	—
Gross gains		119			—
Gross losses		(26	)		—

The contractual maturities at ~~September 30, 2022~~March 31, 2023 of available for sale and held to maturity securities at carrying value and estimated fair value are shown below. The Company invests in mortgage-backed securities and collateralized mortgage obligations that have expected maturities that differ from their contractual maturities. These differences arise because borrowers and/or issuers may have the right to call or prepay their obligation with or without call or prepayment penalties.


	Available for Sale				Held to Maturity				Available for Sale				Held to Maturity
September 30, 2022	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
March 31, 2023									Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due within one year	$	5,019	$	4,967	$	208,372	$	206,824	$	—	$	—	$	74,980	$	73,848
Due after one year through five years		10,100		9,743		107,637		105,615		11,063		10,578		70,556		69,126
Due after five years through ten years		26,285		24,833		67,053		62,297		18,880		17,063		86,353		83,208
Due after ten years		3,086		2,984		71,875		65,439		3,186		3,402		73,214		68,935
Mortgage-backed securities		150,516		133,615		135,292		119,549		139,187		123,578		130,138		115,412
Collateralized mortgage obligations		23,484		21,802		43,157		36,120		20,805		19,123		40,864		33,775
Total securities	$	218,490	$	197,944	$	633,386	$	595,844	$	193,121	$	173,744	$	476,105	$	444,304

(Continued)

~~11.~~10.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

NOTE 3 - LOANS AND ALLOWANCE FOR CREDIT LOSSES

The following table summarizes the Company’s loan portfolio by type of loan as of:


	September 30, 2022			December 31, 2021				March 31, 2023			December 31, 2022
Commercial and industrial	$	278,091		$	280,569			$	295,936		$	314,067
Real estate:
Construction and development		391,564			307,797				372,203			377,135
Commercial real estate		821,941			622,842				900,190			887,587
Farmland		179,402			145,501				190,802			185,817
1-4 family residential		467,983			410,673				499,944			493,061
Multi-family residential		43,025			30,971				44,760			45,147
Consumer		58,835			50,965				60,163			61,394
Agricultural		13,917			14,639				13,545			13,686
Warehouse lending(1)		10,938			43,720
Overdrafts		369			363				270			282
Total loans(2)		2,266,065			1,908,040
Total loans									2,377,813			2,378,176
Net of:
Deferred loan fees, net		(2,048	)		(1,531	)			(1,620	)		(1,957	)
Allowance for credit losses		(29,235	)		(30,433	)			(31,953	)		(31,974	)
Total net loans(2)	$	2,234,782		$	1,876,076
Total net loans(1)								$	2,344,240		$	2,344,245

(1) Warehouse lending is presented as a component of commercial and industrial loans in remaining tables.
(2) Excludes accrued interest receivable on loans of $6.3 million and $5.8 million as of September 30, 2022 and December 31, 2021, respectively, which is presented separately on the consolidated balance sheets.
(1) Excludes accrued interest receivable on loans of $7.7 million and $7.6 million as of March 31, 2023 and December 31, 2022, respectively, which is presented separately on the consolidated balance sheets.							(1) Excludes accrued interest receivable on loans of $7.7 million and $7.6 million as of March 31, 2023 and December 31, 2022, respectively, which is presented separately on the consolidated balance sheets.

(Continued)

~~12.~~11.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

The Company’s estimate of the allowance for credit losses (“ACL”) reflects losses expected over the remaining contractual life of the assets. The contractual term does not consider possible extensions, renewals or ~~modifications unless the Company has identified an expected troubled debt restructuring.~~modifications. The following tables present the activity in the ACL by class of loans for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, for the year ended December 31, ~~2021~~2022 and for the ~~nine~~three months ended ~~September 30, 2021:~~March 31, 2022:


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
For the Three Months Ended March 31, 2023																											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		$	4,382		$	4,889		$	12,658	$	2,008	$	6,617	$	490		$	778		$	149		$	3		$	31,974
(Reversal of) provision for credit losses		347			389		(2,121	)		141		158		50		229			(19	)		176			(650	)
Provision for (reversal of) for credit losses																												(239	)		(25	)		32		78		24		(11	)		82			(4	)		63			—
Loans charged-off		(192	)		—		—			—		—		—		(313	)		—			(241	)		(746	)		(3	)		—			—		—		—		—			(7	)		(3	)		(81	)		(94	)
Recoveries		62			—		1			—		30		—		40			—			65			198			8			—			—		—		—		—			45			2			18			73
Ending balance	$	3,817		$	4,610	$	11,645		$	1,839	$	6,006	$	446	$	718		$	150		$	4		$	29,235		$	4,148		$	4,864		$	12,690	$	2,086	$	6,641	$	479		$	898		$	144		$	3		$	31,953


For the Year Ended December 31, 2021	Commercial and industrial			Construction and development			Commercial real estate			Farmland		1-4 family residential			Multi-family residential		Consumer			Agricultural			Overdrafts			Total
For the Year Ended December 31, 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	$	4,033		$	4,735		$	15,780		$	1,220	$	6,313		$	363	$	929		$	239		$	7		$	33,619		$	3,600		$	4,221	$	13,765		$	1,698	$	5,818	$	396	$	762		$	169		$	4		$	30,433
(Reversal of) provision for credit losses		(43	)		(515	)		(1,229	)		478		(495	)		33		(51	)		(78	)		200			(1,700	)		902			668		(1,108	)		310		769		94		283			(20	)		252			2,150
Loans charged-off		(411	)		—			(816	)		—		—			—		(151	)		—			(263	)		(1,641	)		(192	)		—		—			—		—		—		(322	)		—			(335	)		(849	)
Recoveries		21			1			30			—		—			—		35			8			60			155			72			—		1			—		30		—		55			—			82			240
Ending balance	$	3,600		$	4,221		$	13,765		$	1,698	$	5,818		$	396	$	762		$	169		$	4		$	30,433		$	4,382		$	4,889	$	12,658		$	2,008	$	6,617	$	490	$	778		$	149		$	3		$	31,974


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
For the Three Months Ended March 31, 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	$	4,033		$	4,735		$	15,780		$	1,220	$	6,313		$	363	$	929		$	239		$	7		$	33,619		$	3,600		$	4,221		$	13,765		$	1,698	$	5,818		$	396	$	762		$	169		$	4			30,433
Provision for credit losses		(268	)		(774	)		(670	)		365		(559	)		213		(61	)		(73	)		127			(1,700	)
Provision for (reversal of) credit losses																														230			(323	)		(1,569	)		302		(119	)		60		146			(13	)		36			(1,250	)
Loans charged-off		(300	)		—			(816	)		—		—			—		(113	)		—			(173	)		(1,402	)		(119	)		—			—			—		—			—		(17	)		—			(67	)		(203	)
Recoveries		15			1			11			—		—			—		32			—			45			104			39			—			1			—		30			—		16			—			30			116
Ending balance	$	3,480		$	3,962		$	14,305		$	1,585	$	5,754		$	576	$	787		$	166		$	6		$	30,621		$	3,750		$	3,898		$	12,197		$	2,000	$	5,729		$	456	$	907		$	156		$	3		$	29,096

(Continued)

~~13.~~12.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

~~During the year ended December 31, 2020, a total allowance for credit losses provision of $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 no ~~provision in the first quarter, a $1,000~~ ~~reverse provision in the second quarter and a $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~~all remaining COVID-specific qualitative factors were removed and ~~recorded an additional~~a reverse provision of $1,250 was recorded to account for significant improvements in COVID-related health statistics and economic ~~impacts.~~impacts through that time period. However, growth in ~~our~~the loan portfolio during subsequent quarters, as well as ~~adjustments~~declines in economic outlooks in 2022 and an adjustment to qualitative factors for an expected 2023 recession ~~forecasts,~~ resulted in a $~~600~~2,150 provision expense for the year ended December 31, 2022. There was no provision for loan losses recorded in during the ~~third~~first quarter of ~~2022.~~2023.

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 and for our SBA loans acquired from Westbound ~~Bank and for SBA-guaranteed PPP loans.~~Bank. 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)

13.

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 March 31, 2023:


March 31, 2023	2023		2022		2021		2020		2019		Prior			Revolving Loans Amortized Cost		Total
Commercial and industrial:
Pass	$	20,706	$	86,053	$	53,172	$	17,774	$	10,891	$	16,203		$	88,735	$	293,534
Special mention		—		—		—		—		287		—			640		927
Substandard		—		13		—		240		410		204			—		867
Nonaccrual		—		135		343		75		—		31			24		608
Total commercial and industrial loans	$	20,706	$	86,201	$	53,515	$	18,089	$	11,588	$	16,438		$	89,399	$	295,936

Charge-offs	$	—	$	—	$	—	$	—	$	—	$	(3	)	$	—	$	(3	)
Recoveries		—		—		—		—		—		4			4		8
Current period net	$	—	$	—	$	—	$	—	$	—	$	1		$	4	$	5

Construction and development:
Pass	$	12,877	$	177,829	$	127,875	$	16,879	$	8,031	$	13,573		$	11,750	$	368,814
Special mention		—		893		—		—		—		—			—		893
Substandard		—		—		—		—		—		—			—		—
Nonaccrual		—		262		799		—		—		1,435			—		2,496
Total construction and development loans	$	12,877	$	178,984	$	128,674	$	16,879	$	8,031	$	15,008		$	11,750	$	372,203

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

Commercial real estate:
Pass	$	19,634	$	356,222	$	148,170	$	85,555	$	59,890	$	194,906		$	15,545	$	879,922
Special mention		—		—		—		1,291		—		5,961			—		7,252
Substandard		—		1,617		—		262		—		4,181			—		6,060
Nonaccrual		—		—		—		—		87		6,869			—		6,956
Total commercial real estate loans	$	19,634	$	357,839	$	148,170	$	87,108	$	59,977	$	211,917		$	15,545	$	900,190

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

(Continued)

14.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)


March 31, 2023	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost		Total
Farmland:
Pass	$	10,605	$	91,287	$	50,961	$	9,384	$	6,530	$	17,194	$	4,642	$	190,603
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		30		60		—		90
Nonaccrual		—		—		—		—		—		109		—		109
Total farmland loans	$	10,605	$	91,287	$	50,961	$	9,384	$	6,560	$	17,363	$	4,642	$	190,802

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

1-4 family residential:
Pass	$	13,428	$	144,109	$	130,185	$	48,171	$	29,331	$	110,684	$	20,781	$	496,689
Special mention		—		—		45		—		47		123		—		215
Substandard		—		—		—		—		—		—		—		—
Nonaccrual		—		300		429		183		112		1,316		700		3,040
Total 1-4 family residential loans	$	13,428	$	144,409	$	130,659	$	48,354	$	29,490	$	112,123	$	21,481	$	499,944

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

Multi-family residential:
Pass	$	—	$	18,146	$	18,225	$	2,438	$	4,182	$	1,678	$	91	$	44,760
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Nonaccrual		—		—		—		—		—		—		—		—
Total multi-family residential loans	$	—	$	18,146	$	18,225	$	2,438	$	4,182	$	1,678	$	91	$	44,760

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

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

September 30, 2022

2022

2021

2020

2019

2018

Prior

Revolving Loans Amortized Cost

Total

Commercial and industrial:

Pass

$
79,468

$
71,470

$
21,831

$
12,466

$
4,490

$
13,440

$
83,168

$
286,333

Special mention

—

137

—

378

—

—

950

1,465

Substandard

—

—

252

647

198

63

—

1,160

Nonaccrual

13

47

11

—

—

—

—

71

Total commercial and industrial loans

$
79,481

$
71,654

$
22,094

$
13,491

$
4,688

$
13,503

$
84,118

$
289,029

Charge-offs

$
—

$
—

$
(67
)

$
—

$
—

$
—

$
(125
)

$
(192
)
Recoveries

—

—

—

—

—

33

29

62

Current period net

$
—

$
—

$
(67
)

$
—

$
—

$
33

$
(96
)

$
(130
)

Construction and development:

Pass

$
154,255

$
171,294

$
29,113

$
8,852

$
4,986

$
11,923

$
9,280

$
389,703

Special mention

—

—

950

—

—

911

—

1,861

Substandard

—

—

—

—

—

—

—

—

Nonaccrual

—

—

—

—

—

—

—

—

Total construction and development loans

$
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

$
286,359

$
132,069

$
93,375

$
64,690

$
53,721

$
159,911

$
10,094

$
800,219

Special mention

—

—

—

—

2,605

4,281

—

6,886

Substandard

—

—

—

—

1,026

6,456

—

7,482

Nonaccrual

—

—

254

104

16

6,980

—

7,354

Total commercial real estate loans

$
286,359

$
132,069

$
93,629

$
64,794

$
57,368

$
177,628

$
10,094

$
821,941

Charge-offs

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

Recoveries

—

—

—

—

1

—

—

1

Current period net

$
—

$
—

$
—

$
—

$
1

$
—

$
—

$
1

(Continued)

15.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)


September 30, 2022	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost		Total
Farmland:
March 31, 2023																	2023			2022			2021			2020		2019		Prior			Revolving Loans Amortized Cost		Total
Consumer and overdrafts:
Pass	$	83,092	$	54,255	$	11,283	$	6,936	$	6,046	$	12,305	$	5,271	$	179,188	$	7,309		$	27,868		$	9,807		$	4,593	$	1,370	$	3,084		$	6,201	$	60,232
Special mention		—		—		—		—		—		—		—		—		—			10			9			—		19		9			—		47
Substandard		—		—		—		32		—		65		—		97		—			—			—			—		—		—			—		—
Nonaccrual		—		—		—		—		—		117		—		117		—			22			79			25		10		18			—		154
Total farmland loans	$	83,092	$	54,255	$	11,283	$	6,968	$	6,046	$	12,487	$	5,271	$	179,402
Total consumer loans and overdrafts																	$	7,309		$	27,900		$	9,895		$	4,618	$	1,399	$	3,111		$	6,201	$	60,433

Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	(81	)	$	(4	)	$	(3	)	$	—	$	—	$	—		$	—	$	(88	)
Recoveries		—		—		—		—		—		—		—		—		18			—			1			—		—		4			40		63
Current period net	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	(63	)	$	(4	)	$	(2	)	$	—	$	—	$	4		$	40	$	(25	)

1-4 family residential:
Agricultural:
Pass	$	113,548	$	126,656	$	51,155	$	32,313	$	28,004	$	94,089	$	20,530	$	466,295	$	652		$	2,503		$	1,483		$	929	$	459	$	716		$	6,736	$	13,478
Special mention		—		—		—		120		—		34		—		154		—			—			—			—		—		—			—		—
Substandard		—		—		—		—		—		—		—		—		—			—			—			—		—		25			—		25
Nonaccrual		—		153		—		—		123		1,258		—		1,534		—			—			—			—		—		42			—		42
Total 1-4 family residential loans	$	113,548	$	126,809	$	51,155	$	32,433	$	28,127	$	95,381	$	20,530	$	467,983
Total agricultural loans																	$	652		$	2,503		$	1,483		$	929	$	459	$	783		$	6,736	$	13,545

Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—		$	—		$	—		$	—	$	—	$	(3	)	$	—	$	(3	)
Recoveries		—		—		—		—		—		30		—		30		—			—			—			—		—		2			—		2
Current period net	$	—	$	—	$	—	$	—	$	—	$	30	$	—	$	30	$	—		$	—		$	—		$	—	$	—	$	(1	)	$	—	$	(1	)

Multi-family residential:
Total loans:
Pass	$	14,970	$	18,452	$	2,488	$	4,249	$	886	$	1,889	$	91	$	43,025	$	85,211		$	904,017		$	539,878		$	185,723	$	120,684	$	358,038		$	154,481	$	2,348,032
Special mention		—		—		—		—		—		—		—		—		—			903			54			1,291		353		6,093			640		9,334
Substandard		—		—		—		—		—		—		—		—		—			1,630			—			502		440		4,470			—		7,042
Nonaccrual		—		—		—		—		—		—		—		—		—			719			1,650			283		209		9,820			724		13,405
Total multi-family residential loans	$	14,970	$	18,452	$	2,488	$	4,249	$	886	$	1,889	$	91	$	43,025
Total loans																	$	85,211		$	907,269		$	541,582		$	187,799	$	121,686	$	378,421		$	155,845	$	2,377,813

Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	(81	)	$	(4	)	$	(3	)	$	—	$	—	$	(6	)	$	—	$	(94	)
Recoveries		—		—		—		—		—		—		—		—		18			—			1			—		—		10			44		73
Current period net	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total current period net (charge-offs) recoveries																	$	(63	)	$	(4	)	$	(2	)	$	—	$	—	$	4		$	44	$	(21	)

(Continued)

16.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

September 30, 2022

2022

2021

2020

2019

2018

Prior

Revolving Loans Amortized Cost

Total

Consumer and overdrafts:

Pass

$
25,380

$
14,285

$
6,650

$
2,287

$
3,350

$
572

$
6,531

$
59,055

Special mention

5

—

9

12

—

—

—

26

Substandard

—

—

—

—

—

—

—

—

Nonaccrual

—

81

5

4

27

6

—

123

Total consumer loans and overdrafts

$
25,385

$
14,366

$
6,664

$
2,303

$
3,377

$
578

$
6,531

$
59,204

Charge-offs

$
(241
)

$
(20
)

$
(22
)

$
(20
)

$
—

$
(1
)

$
(250
)

$
(554
)
Recoveries

66

2

6

11

1

19

—

105

Current period net

$
(175
)

$
(18
)

$
(16
)

$
(9
)

$
1

$
18

$
(250
)

$
(449
)

Agricultural:

Pass

$
2,780

$
2,071

$
1,096

$
556

$
433

$
471

$
6,327

$
13,734

Special mention

—

—

—

—

—

4

—

4

Substandard

—

—

14

2

—

32

—

48

Nonaccrual

—

—

—

—

6

53

72

131

Total agricultural loans

$
2,780

$
2,071

$
1,110

$
558

$
439

$
560

$
6,399

$
13,917

Charge-offs

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

Recoveries

—

—

—

—

—

—

—

—

Current period net

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

Total loans:

Pass

$
759,852

$
590,552

$
216,991

$
132,349

$
101,916

$
294,600

$
141,292

$
2,237,552

Special mention

5

137

959

510

2,605

5,230

950

10,396

Substandard

—

—

266

681

1,224

6,616

—

8,787

Nonaccrual

13

281

270

108

172

8,414

72

9,330

Total loans

$
759,870

$
590,970

$
218,486

$
133,648

$
105,917

$
314,860

$
142,314

$
2,266,065

Charge-offs

$
(241
)

$
(20
)

$
(89
)

$
(20
)

$
—

$
(1
)

$
(375
)

$
(746
)
Recoveries

66

2

6

11

2

82

29

198

Total current period net (charge-offs) recoveries

$
(175
)

$
(18
)

$
(83
)

$
(9
)

$
2

$
81

$
(346
)

$
(548
)

The following table summarizes the credit exposure in the Company’s loan portfolio, by year of origination, as of December 31, 2022:


December 31, 2022	2022		2021		2020			2019		2018		Prior		Revolving Loans Amortized Cost			Total
Commercial and industrial:
Pass	$	99,750	$	57,854	$	19,577		$	11,797	$	4,172	$	12,907	$	105,628		$	311,685
Special mention		—		131		—			333		—		—		905			1,369
Substandard		14		—		246			423		192		23		—			898
Nonaccrual		72		33		10			—		—		—		—			115
Total commercial and industrial loans	$	99,836	$	58,018	$	19,833		$	12,553	$	4,364	$	12,930	$	106,533		$	314,067

Charge-offs	$	—	$	—	$	(67	)	$	—	$	—	$	—	$	(125	)	$	(192	)
Recoveries		—		—		—			—		—		32		40			72
Current period net	$	—	$	—	$	(67	)	$	—	$	—	$	32	$	(85	)	$	(120	)

Construction and development:
Pass	$	179,501	$	138,388	$	17,361		$	8,697	$	3,443	$	10,535	$	16,870		$	374,795
Special mention		905		—		—			—		—		—		—			905
Substandard		—		—		—			—		—		—		—			—
Nonaccrual		—		—		—			—		1,435		—		—			1,435
Total construction and development loans	$	180,406	$	138,388	$	17,361		$	8,697	$	4,878	$	10,535	$	16,870		$	377,135

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

Commercial real estate:
Pass	$	347,162	$	147,986	$	86,897		$	63,988	$	51,002	$	158,384	$	12,007		$	867,426
Special mention		—		—		1,300			—		2,594		3,427		—			7,321
Substandard		1,336		—		—			—		26		4,207		—			5,569
Nonaccrual		—		—		251			96		—		6,924		—			7,271
Total commercial real estate loans	$	348,498	$	147,986	$	88,448		$	64,084	$	53,622	$	172,942	$	12,007		$	887,587

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

(Continued)

17.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)


December 31, 2022	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost		Total
Farmland:
Pass	$	93,128	$	51,912	$	10,284	$	6,646	$	5,956	$	11,741	$	5,948	$	185,615
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		31		—		62		—		93
Nonaccrual		—		—		—		—		—		109		—		109
Total farmland loans	$	93,128	$	51,912	$	10,284	$	6,677	$	5,956	$	11,912	$	5,948	$	185,817

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

1-4 family residential:
Pass	$	143,268	$	128,957	$	50,140	$	30,068	$	27,104	$	89,678	$	21,956	$	491,171
Special mention		—		—		43		—		—		156		—		199
Substandard		—		—		—		—		—		—		—		—
Nonaccrual		—		148		—		116		118		1,309		—		1,691
Total 1-4 family residential loans	$	143,268	$	129,105	$	50,183	$	30,184	$	27,222	$	91,143	$	21,956	$	493,061

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

Multi-family residential:
Pass	$	18,183	$	18,331	$	2,463	$	4,216	$	878	$	985	$	91	$	45,147
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Nonaccrual		—		—		—		—		—		—		—		—
Total multi-family residential loans	$	18,183	$	18,331	$	2,463	$	4,216	$	878	$	985	$	91	$	45,147

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

~~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

Commercial and industrial:

Pass

$
176,972

$
31,337

$
16,207

$
6,449

$
3,493

$
14,657

$
74,364

$
323,479

Special mention

—

88

—

—

14

—

—

102

Substandard

—

272

55

192

40

1

—

560

Nonaccrual

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

Charge-offs

$
—

$
—

$
(168
)

$
(67
)

$
(115
)

$
—

$
(61
)

$
(411
)
Recoveries

—

—

—

—

—

—

21

21

Current period net

$
—

$
—

$
(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

Special mention

—

—

—

—

944

—

—

944

Substandard

—

—

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

Charge-offs

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

Recoveries

—

—

—

—

—

1

—

1

Current period net

$
—

$
—

$
—

$
—

$
—

$
1

$
—

$
1

Commercial real estate:

Pass

$
134,617

$
93,806

$
80,733

$
59,380

$
43,457

$
145,477

$
16,065

$
573,535

Special mention

—

765

—

—

4,550

788

—

6,103

Substandard

—

6,987

—

10,041

12,981

12,553

—

42,562

Nonaccrual

—

—

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

Charge-offs

$
—

$
—

$
(17
)

$
(56
)

$
(472
)

$
(271
)

$
—

$
(816
)
Recoveries

—

—

19

—

11

—

—

30

Current period net

$
—

$
—

$
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:
December 31, 2022																	2022			2021			2020			2019			2018		Prior		Revolving Loans Amortized Cost			Total
Consumer and overdrafts:
Pass	$	94,491	$	11,868	$	8,664	$	7,456	$	5,191	$	11,145	$	6,290	$	145,105	$	32,817		$	11,789		$	5,455		$	1,835		$	3,079	$	473	$	6,008		$	61,456
Special mention		—		—		—		—		—		26		—		26		14			4			—			28			4		—		—			50
Substandard		—		—		—		—		—		72		—		72		—			—			—			—			—		—		—			—
Nonaccrual		—		195		—		—		—		103		—		298		17			93			21			12			23		4		—			170
Total farmland loans	$	94,491	$	12,063	$	8,664	$	7,456	$	5,191	$	11,346	$	6,290	$	145,501
Total consumer loans and overdrafts																	$	32,848		$	11,886		$	5,476		$	1,875		$	3,106	$	477	$	6,008		$	61,676

Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	(335	)	$	(26	)	$	(25	)	$	(21	)	$	—	$	—	$	(250	)	$	(657	)
Recoveries		—		—		—		—		—		—		—		—		83			3			6			11			1		33		—			137
Current period net	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	(252	)	$	(23	)	$	(19	)	$	(10	)	$	1	$	33	$	(250	)	$	(520	)

1-4 family residential:
Agricultural:
Pass	$	132,448	$	64,590	$	43,016	$	36,501	$	26,987	$	91,864	$	13,714	$	409,120	$	3,148		$	1,914		$	984		$	491		$	392	$	422	$	6,243		$	13,594
Special mention		—		—		—		—		—		18		—		18		—			—			—			—			—		3		—			3
Substandard		—		—		—		—		—		—		—		—		—			—			—			—			—		32		—			32
Nonaccrual		170		—		—		180		58		1,127		—		1,535		—			—			—			—			4		53		—			57
Total 1-4 family residential loans	$	132,618	$	64,590	$	43,016	$	36,681	$	27,045	$	93,009	$	13,714	$	410,673
Total agricultural loans																	$	3,148		$	1,914		$	984		$	491		$	396	$	510	$	6,243		$	13,686

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

Multi-family residential:
Total loans:
Pass	$	16,663	$	4,286	$	6,436	$	908	$	474	$	2,113	$	91	$	30,971	$	916,957		$	557,131		$	193,161		$	127,738		$	96,026	$	285,125	$	174,751		$	2,350,889
Special mention		—		—		—		—		—		—		—		—		919			135			1,343			361			2,598		3,586		905			9,847
Substandard		—		—		—		—		—		—		—		—		1,350			—			246			454			218		4,324		—			6,592
Nonaccrual		—		—		—		—		—		—		—		—		89			274			282			224			1,580		8,399		—			10,848
Total multi-family residential loans	$	16,663	$	4,286	$	6,436	$	908	$	474	$	2,113	$	91	$	30,971
Total loans																	$	919,315		$	557,540		$	195,032		$	128,777		$	100,422	$	301,434	$	175,656		$	2,378,176

Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	(335	)	$	(26	)	$	(92	)	$	(21	)	$	—	$	—	$	(375	)	$	(849	)
Recoveries		—		—		—		—		—		—		—		—		83			3			6			11			2		95		40			240
Current period net	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total current period net charge-offs																	$	(252	)	$	(23	)	$	(86	)	$	(10	)	$	2	$	95	$	(335	)	$	(609	)

There were no loans classified in the “doubtful” or “loss” risk rating categories as of March 31, 2023 and December 31, 2022.

(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~~ no ~~loans classified in the “doubtful” or “loss” risk rating categories as of 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 December 31, 2021.~~ There were no individually evaluated ~~collateral -dependent~~collateral-dependent loans within the ACL model as of ~~September 30,~~March 31, 2023 or December 31, 2022.

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:


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
March 31, 2023															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	$	121	$	—	$	59	$	180	$	288,849	$	289,029	$	—	$	449	$	79	$	208	$	736	$	295,200	$	295,936	$	—
Real estate:
Construction and development		196		—		—		196		391,368		391,564		—		1,347		—		2,306		3,653		368,550		372,203		—
Commercial real estate		—		—		6,761		6,761		815,180		821,941		—		353		—		6,675		7,028		893,162		900,190		—
Farmland		19		35		—		54		179,348		179,402		—		129		97		—		226		190,576		190,802		—
1-4 family residential		1,537		232		467		2,236		465,747		467,983		—		2,586		290		1,840		4,716		495,228		499,944		—
Multi-family residential		—		—		—		—		43,025		43,025		—		—		—		—		—		44,760		44,760		—
Consumer		337		47		27		411		58,424		58,835		—		697		78		81		856		59,307		60,163		—
Agricultural		2		4		6		12		13,905		13,917		—		—		40		—		40		13,505		13,545		—
Overdrafts		—		—		—		—		369		369		—		—		—		—		—		270		270		—
Total	$	2,212	$	318	$	7,320	$	9,850	$	2,256,215	$	2,266,065	$	—	$	5,561	$	584	$	11,110	$	17,255	$	2,360,558	$	2,377,813	$	—


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
December 31, 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	$	969	$	38	$	134	$	1,141	$	323,148	$	324,289	$	—	$	440	$	44	$	105	$	589	$	313,478	$	314,067	$	—
Real estate:
Construction and development		885		132		—		1,017		306,780		307,797		—		258		73		1,435		1,766		375,369		377,135		—
Commercial real estate		—		360		350		710		622,132		622,842		—		882		354		6,708		7,944		879,643		887,587		—
Farmland		114		87		195		396		145,105		145,501		—		129		79		—		208		185,609		185,817		—
1-4 family residential		1,650		123		410		2,183		408,490		410,673		—		2,101		547		572		3,220		489,841		493,061		—
Multi-family residential		—		—		—		—		30,971		30,971		—		—		—		—		—		45,147		45,147		—
Consumer		189		113		68		370		50,595		50,965		—		164		118		70		352		61,042		61,394		—
Agricultural		41		8		—		49		14,590		14,639		—		37		10		—		47		13,639		13,686		—
Overdrafts		—		—		—		—		363		363		—		—		—		—		—		282		282		—
Total	$	3,848	$	861	$	1,157	$	5,866	$	1,902,174	$	1,908,040	$	—	$	4,011	$	1,225	$	8,890	$	14,126	$	2,364,050	$	2,378,176	$	—

The following table presents information regarding nonaccrual loans as of:


	September 30, 2022		December 31, 2021		March 31, 2023		December 31, 2022
Commercial and industrial	$	71	$	148	$	608	$	115
Real estate:
Construction and development						2,496		1,435
Commercial real estate		7,354		642		6,956		7,271
Farmland		117		298		109		109
1-4 family residential		1,534		1,535		3,040		1,691
Consumer and overdrafts		123		160		154		170
Agricultural		131		48		42		57
Total	$	9,330	$	2,831	$	13,405	$	10,848

There were no commitments to lend additional funds to borrowers whose loans were classified as nonaccrual.

Modifications to Borrowers Experiencing Financial Difficulty

The Company adopted Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) effective January 1, 2023. The amendments in

A(Continued)

20.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

ASU 2022-02 eliminated the recognition and measure of troubled debt ~~restructuring (“TDR”) is a restructuring in which a bank,~~restructurings and enhanced disclosures for ~~economic~~loan modifications to borrowers experiencing financial difficulty.

The following table presents the amortized cost basis of loans made to borrowers experiencing financial difficulty that were modified during the three months ended March 31, 2023:


For the Three Months Ended March 31, 2023	Term Extension		Total Class of Financing Receivable
Consumer	$	49		0.1	%
Total loans	$	49		0.1	%

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty during the three months ended March 31, 2023:


Term Extension
Loan Type		Financial Effect
Consumer		Amortization period was extended by a weighted-average period of 7.2 years.

The following table provides an age analysis of loans made to borrowers experiencing financial difficult that were modified on or ~~legal reasons related~~after our ASU 2022-02 adoption date of January 1, 2023:


	Current		30 to 89 Days Past Due		90 Days or Greater Past Due
Consumer		49		—		—
Total loans	$	49	$	—	$	—

As of March 31, 2023, the Company did not have any loans made to ~~a borrower's~~borrowers experiencing financial ~~difficulties, grants a concession to~~difficulty that were modified during the ~~borrower~~first quarter of 2023 that ~~it would not otherwise consider.~~subsequently defaulted.

There were no loans ~~modified as TDRs~~restructured during the ~~nine~~three months ended ~~September 30,~~March 31, 2022.

NOTE 4 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER DEBT

Securities sold under agreements to repurchase were $13,338 and $7,221 as of March 31, 2023 and December 31, 2022, respectively, and are secured by mortgage-backed securities and collateralized mortgage obligations.

The Company has an unsecured $25,000 revolving line of credit, which had no outstanding balance at March 31, 2023 or December 31, 2022, bears interest at the greater of (i) the prime rate, which was 8.00% at March 31, 2023, or (ii) the rate floor of 3.50%, with interest payable quarterly, and matures in March 2024.

Federal Home Loan Bank (FHLB) advances bear interest based on a fixed or variable rate, payable monthly, with all principal due at maturity. The following table presents the scheduled maturities of fixed and variable rate FHLB advances and their weighted average rates, as of March 31, 2023:


Year	Current Weighted Average Rate			Principal Due
Fixed rate advances
2023		5.03	%	$	260,000
2024		4.38	%		10,000
Total fixed rate FHLB advances				$	270,000
Variable rate advances
2023		4.98	%	$	70,000
Total variable rate FHLB advances					70,000
Total FHLB advances				$	340,000

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

~~NOTE 4 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER DEBT~~

~~At September 30, 2022 and December 31, 2021, securities sold under agreements to repurchase totaled $7,592~~ ~~and $14,151, respectively.~~

~~The Company has an unsecured $25,000~~ ~~revolving line of credit, which had~~ no ~~outstanding balance at September 30, 2022, bears interest at the greater of (i) the prime rate, which was~~ ~~6.25% at September 30, 2022, or (ii) the rate floor of~~ ~~3.50%, with interest payable quarterly, and matures in March 2023. As of December 31, 2021, there was a $5,000~~ ~~outstanding balance on the line of credit.~~

Federal Home Loan Bank (FHLB) advances bear interest based on a fixed rate, payable monthly, with all principal due at maturity. The following table presents the scheduled maturities of FHLB advances and their weighted average rates, each as of September 30, 2022:

Year

Current
Weighted
Average Rate

Principal Due

2022

2.68
%

$
185,000

2023

3.91
%

40,000

$
225,000

NOTE 5 - SUBORDINATED DEBT

Subordinated debt was made up of the following as of:


	September 30, 2022		December 31, 2021		March 31, 2023		December 31, 2022
Trust II Debentures	$	—	$	3,093
Trust III Debentures		2,062		2,062		2,062		2,062
DCB Trust I Debentures		5,155		5,155		5,155		5,155
Subordinated note		34,402		—		34,469		34,436
Other debentures		9,500		9,500		7,500		7,500
	$	51,119	$	19,810	$	49,186	$	49,153

~~The~~As of March 31, 2023, the Company has two active trusts, Guaranty (TX) Capital Trust III (“Trust III”) and DCB Financial Trust I (“DCB Trust I”). ~~The subordinated debentures of a third trust, Guaranty (TX) Capital Trust II, were redeemed in May 2022, for $3,093~~. Upon formation, the Trusts issued pass-through securities (“TruPS”) with a liquidation value of $1,000 per share to third parties in private placements. Concurrently with the issuance of the TruPS, the Trusts (comprised of Trust III and DCB Trust I) issued common securities to the Company. The Trusts invested the proceeds of the sales of securities to the Company (“Debentures”). The Debentures mature approximately 30 years after the formation date, which may be shortened if certain conditions are met (including the Company having received prior approval of the Federal Reserve and any other required regulatory approvals).

~~(Continued)~~

~~22.~~

~~GUARANTY BANCSHARES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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


	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

The securities held by the Trusts qualify as Tier 1 capital for the Company under Federal Reserve Board guidelines. The Federal Reserve’s guidelines restrict core capital elements (including trust preferred securities and qualifying perpetual preferred stock) to 25% of all core capital elements, net of goodwill less any associated deferred tax liability. Because the Company’s aggregate amount of trust preferred securities is less than the limit of 25% of Tier 1 capital, net of goodwill, the full amount is includable in Tier 1 capital at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022. Additionally, the terms provide that trust preferred securities would no longer qualify for Tier 1 capital within five years of their maturity, but would be included as Tier 2 capital. However, the trust preferred securities would be amortized out of Tier 2 capital by one-fifth each year and excluded from Tier 2 capital completely during the year prior to maturity of the junior subordinated debentures.

With certain exceptions, the amount of the principal and any accrued and unpaid interest on the Debentures are subordinated in right of payment to the prior payment in full of all senior indebtedness of the Company. Interest on the Debentures is payable quarterly. The interest is deferrable on a cumulative basis for up to five consecutive years following a suspension of dividend payments on all other capital stock. No principal payments are due until maturity for each of the Debentures.


	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

In accordance with ASC 810, ~~"Consolidation,~~"Consolidation," the junior subordinated debentures issued by the Company to the subsidiary trusts are shown as liabilities in the consolidated balance sheets and interest expense associated with the junior subordinated debentures is shown in the consolidated statements of earnings.

Trust ~~II Debentures~~

~~These debentures were redeemed in May 2022.~~

~~Trust~~ III Debentures

Interest is payable at a variable rate per annum, reset quarterly, equal to ~~3 month~~3-month LIBOR plus 1.67%.

On any interest payment date on or after October 1, 2016 and prior to maturity date, the debentures are redeemable for cash at the option of the Company, on at least 30, but not more than 60 days’ notice, in whole or in part, at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued interest to the date of redemption.

(Continued)

22.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

DCB Trust I Debentures

Interest is payable at a variable rate per annum, reset quarterly, equal to ~~3 month~~3-month LIBOR plus 1.80%.

On any interest payment date on or after June 15, 2012 and prior to maturity date, the debentures are redeemable for cash at the option of the Company, on at least 30, but not more than 60 days’ notice, in whole or in part, at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued interest to the date of redemption.

Subordinated Note

OnIn March 4, 2022, the Company completed a private placement of $35,000 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 Secured

~~(Continued)~~

~~23.~~

~~GUARANTY BANCSHARES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

Overnight Financing Rate ("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 related unamortized issuance costs on the consolidated balance sheets.

Other Debentures

In May 2020, the Company issued $10,000 in debentures to directors and other related parties. The debentures were issued at a par value of $500 each with fixed annual rates between 1.00% and 4.00% and maturity dates between November 1, 2020 and November 1, 2024. $~~500~~Various of these debentures have matured ~~in November of 2020~~since issuance and $~~9,500~~7,500 ~~remain~~remains as of ~~September 30, 2022.~~March 31, 2023. At the Company’s option, and with 30 days advanced notice to the holder, the entire principal amount and all accrued interest may be paid to the holder on or before the maturity date of any debenture. The redemption price is equal to 100% of the face amount of the debenture redeemed, plus all accrued interest.

The scheduled principal payments and weighted average rates of the Debentures, the subordinated note and other debentures ~~excluding the Trusts,~~ are as follows:


Year	Current Weighted Average Rate			Principal Due		Current Weighted Average Rate			Principal Due
2022		2.45	%	$	2,000
2023		2.85	%		3,500		2.85	%		3,500
2024		3.74	%		4,000		3.74	%		4,000
Thereafter		3.63	%		34,402		4.20	%		42,217
Total scheduled principal payments									$	49,717
Unamortized debt issuance costs										(531	)
				$	43,902				$	49,186

NOTE 6 – EQUITY AWARDS

The Company’s 2015 Equity Incentive Plan (the “Plan”) was adopted by the Company and approved by its shareholders in April 2015. The maximum number of shares of common stock that may be issued pursuant to stock-based awards under the Plan equals 1,100,000 shares, all of which may be subject to incentive stock option treatment. Option awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant; those option awards have vesting periods ranging from 5 to 10 years and have 10-year contractual terms. Restricted stock awards vest under the period of restriction specified within their respective award agreements as determined by the Company. Forfeitures are recognized as they occur, subject to a 90-day grace period for vested options.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company’s common stock and similar peer group averages. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes in to account that the options are not transferable. The dividend yield is the total dividends per share paid during the period divided by the average of the

(Continued)

23.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

Company's stock price on each date a grant was issued. The risk-free interest rate for the expected term of the option is based on U.S. Treasury yield curve in effect at the time of the grant.

A summary of stock option activity in the Plan during the three months ended March 31, 2023 and 2022 follows:


Three Months Ended March 31, 2023	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at beginning of year		497,820		$	28.07		5.87	$	3,402
Granted		15,500			29.91
Exercised		(8,800	)		25.57
Forfeited		(15,440	)		30.42
Balance, March 31, 2023		489,080		$	28.10		5.77	$	1,037

Exercisable at end of period		281,500		$	25.57		4.26	$	850


Three Months Ended March 31, 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
Granted		39,000			35.89
Forfeited		(5,060	)		26.92
Balance, March 31, 2022		536,720		$	26.50		5.65	$	4,626

Exercisable at end of period		307,086		$	24.30		4.28	$	3,285

A summary of nonvested stock option activity in the Plan during the three months ended March 31, 2023 and 2022 follows:


Three Months Ended March 31, 2023	Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		216,480		$	5.95
Granted		15,500			6.02
Vested		(18,200	)		5.62
Forfeited		(6,200	)		13.10
Balance, March 31, 2023		207,580		$	5.99


Three Months Ended March 31, 2022	Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		207,084		$	5.23
Granted		39,000			6.03
Vested		(14,030	)		5.21
Forfeited		(2,420	)		9.13
Balance, March 31, 2022		229,634		$	5.38

Information related to stock options in the Plan is as follows for the three months ended:


	March 31, 2023		March 31, 2022
Intrinsic value of options exercised	$	22	$	—
Cash received from options exercised		225		—
Weighted average fair value of options granted		6.02		6.03

(Continued)

24.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

~~A summary of stock option activity in the Plan during the nine months ended September 30, 2022 and 2021 follows:~~

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

Granted

69,000

35.71

Exercised

(43,280
)

22.56

Forfeited

(29,920
)

27.21

Balance, September 30, 2022

498,580

$
27.34

5.62

$
3,725

Exercisable at end of period

283,910

$
24.96

4.20

$
2,733

Nine Months Ended September 30, 2021

Number of
Shares

Weighted-
Average
Exercise
Price

Weighted-
Average
Remaining
Contractual
Life in
Years

Aggregate
Intrinsic
Value

Outstanding at beginning of year

506,200

$
26.81

5.82

$
1,805

Effect of 10% stock dividend

50,770

Granted

45,500

33.49

Exercised

(48,630
)

22.89

Forfeited

(19,020
)

26.01

Balance, September 30, 2021

534,820

$
25.22

5.53

$
5,684

Exercisable at end of period

307,786

$
23.78

4.33

$
3,715

~~A summary of nonvested stock option activity in the Plan during the nine months ended September 30, 2022 and 2021 follows:~~

Nine Months Ended September 30, 2022

Number of
Shares

Weighted-Average
Grant
Date Fair Value

Outstanding at beginning of year

207,084

$
5.23

Granted

69,000

6.56

Vested

(46,014
)

(5.90
)
Forfeited

(15,400
)

(9.09
)
Balance, September 30, 2022

214,670

$
5.53

Nine Months Ended September 30, 2021

Number of
Shares

Weighted-Average
Grant
Date Fair Value

Outstanding at beginning of year

214,680

$
4.46

Effect of 10% stock dividend

23,218

Granted

45,500

5.82

Vested

(47,344
)

(5.72
)
Forfeited

(9,020
)

(8.06
)
Balance, September 30, 2021

227,034

$
5.11

~~Information related to stock options in the Plan is as follows for the nine months ended:~~

September 30, 2022

September 30, 2021

Intrinsic value of options exercised

$
521

$
630

Cash received from options exercised

976

1,113

Weighted average fair value of options granted

6.56

5.82

~~(Continued)~~

~~25.~~

~~GUARANTY BANCSHARES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

Restricted Stock Awards ~~and Units~~

A summary of restricted stock activity in the Plan during the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ follows:


Nine Months Ended September 30, 2022	Number of Shares			Weighted-Average Grant Date Fair Value
Three Months Ended March 31, 2023							Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		30,190		$	27.52			18,930		$	27.51
Granted								1,474			34.10
Vested		(4,770	)		(28.32	)		(2,970	)		27.50
Balance, September 30, 2022		25,420		$	27.37
Forfeited								(880	)		27.78
Balance, March 31, 2023								16,554		$	29.03

Nine Months Ended September 30, 2021

Number of
Shares

Weighted-Average
Grant
Date Fair Value

Outstanding at beginning of year

35,300

$
29.72

Effect of 10% stock dividend

3,530

—

Granted

3,500

33.09

Vested

(7,850
)

27.26

Forfeited

—

—

Balance, September 30, 2021

34,480

$
27.41


Three Months Ended March 31, 2022	Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		30,190		$	27.52
Vested		(4,070	)		27.50
Balance, March 31, 2022		26,120		$	27.52

Restricted stock granted to employees typically vests over five years, but vesting periods may vary. Compensation expense for these grants will be recognized over the vesting period of the awards based on the fair value of the stock at the issue date.

As of ~~September 30, 2022,~~March 31, 2023, there was $~~1,637~~1,610 of total unrecognized compensation expense related to ~~unvested~~nonvested stock options granted under the Plan. The expense is expected to be recognized over a weighted-average period of ~~3.18~~3.25 years.

The Company granted options under the Plan during the first ~~nine~~three months of 2022 and ~~2021.~~2022. Expense of $~~485~~148 and $~~512~~156 was recorded during the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively, which represents the fair value of shares, restricted stock and stock options vested during those periods.

NOTE 7 - EMPLOYEE BENEFITS

KSOP

The Company maintains an Employee Stock Ownership Plan containing Section 401(k) provisions covering substantially all employees (“KSOP”). The plan provides for a matching contribution of up to 5% of a participant’s qualified compensation starting January 1, 2016. Guaranty’s total contributions accrued or paid during the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ totaled $~~1,221~~493 and $~~1,146~~436, respectively, and is included in employee compensation and benefits on the Company’s consolidated statements of earnings.

Upon separation from service or other distributable event, a participant’s account under the KSOP may be distributed in kind in the form of the GNTY common shares allocated to his or her account (with the balance payable in cash), or the entire account can be liquidated and distributed in cash.

As of ~~September 30, 2022,~~March 31, 2023, the number of shares held by the KSOP was ~~1,114,312~~996,529. There were no unallocated shares to plan participants as of ~~September 30, 2022,~~March 31, 2023, and all shares held by the KSOP were treated as outstanding.

Executive Incentive Retirement Plan

The Company established a ~~non-qualified,~~nonqualified, non-contributory executive incentive retirement plan covering a selected group of key personnel to provide benefits equal to amounts computed under an “award criteria” at various targeted salary levels as adjusted for annual earnings performance of the Company. The plan is non-funded.

In connection with the Executive Incentive Retirement Plan, the Company has purchased life insurance policies on the respective officers. The cash surrender value of life insurance policies held by the Company totaled $~~38,194~~38,619 and $~~37,141~~38,404 as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

(Continued)

~~26.~~25.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

Expense related to these plans totaled $~~651~~360 and $~~588~~322 for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. This expense is included in employee compensation and benefits on the Company’s consolidated statements of earnings. The recorded liability totaled approximately $~~5,307~~5,694 and $~~4,969~~5,388 as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively and is included in accrued interest and other liabilities on the Company’s consolidated balance sheets.

Bonus Plan

The Company has a bonus plan that rewards officers and employees based on performance of individual business units of the Company. Earnings and growth performance goals for each business unit and for the Company as a whole are established at the beginning of the calendar year and approved annually by Guaranty’s board of directors. The bonus plan provides for a predetermined bonus amount to be contributed to the employee bonus pool based on (i) earnings target and growth for individual business units and (ii) achieving certain pre-tax return on average equity and pre-tax return on average asset levels for the Company as a whole. These bonus amounts are established annually by Guaranty’s board of directors. The bonus expense under this plan for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ totaled $~~3,933~~875 and $~~3,529~~1,267, respectively, which included accrued bonus expense at March 31, 2023 and December 31, 2022 of $575 and $2,332, respectively. This expense is included in employee compensation and benefits on the consolidated statements of ~~earnings.~~earnings and the accrual is included in accrued interest and other liabilities on the consolidated balance sheets.

NOTE 8 – LEASES

The Company has operating leases for bank locations, ATMs, corporate offices, and certain other arrangements, which have remaining lease terms of 1 year to 13 years. Some of the Company’s operating leases include options to extend the leases for up to 10 years.

Operating leases in which we are the lessee must be recorded as right-of-use assets with corresponding lease liabilities. The right-of-use asset represents our right to utilize the underlying asset during the lease term, while the lease liability represents the present value of the obligation of the Company to make periodic lease payments over the life of the lease. The associated operating lease costs are comprised of the amortization of the right-of-use asset and the implicit interest accreted on the lease liability, which is recognized on a straight-line basis over the life of the lease. As of ~~September 30, 2022,~~March 31, 2023, operating lease right-of-use assets were $~~13,363~~12,958 and liabilities were $~~13,975~~13,592, and as of December 31, ~~2021,~~2022, lease assets and liabilities were $~~14,376~~12,896 and $~~14,882~~13,520, respectively, and were included within the accompanying consolidated balance sheets as components of other assets and accrued interest and other liabilities, respectively.

Operating lease expense for operating leases accounted for under ASC 842 for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ was approximately $~~1,673~~578 and $~~1,715~~549, respectively, and is included as a component of occupancy expenses within the accompanying consolidated statements of earnings.

The table below summarizes other information related to our operating leases as of:


	September 30, 2022			December 31, 2021			March 31, 2023			December 31, 2022
Operating leases
Operating lease right-of-use assets	$	13,363		$	14,376		$	12,958		$	12,896
Operating lease liabilities		13,975			14,882			13,592			13,520

Weighted average remaining lease term
Operating leases	8 years			8 years			7 years			8 years
Weighted average discount rate
Operating leases		1.99	%		1.95	%		2.04	%		2.00	%

(Continued)

~~27.~~26.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

The Company leases some of its banking facilities under non-cancelable operating leases expiring in various years through ~~2026~~2027 and thereafter. Minimum future lease payments under these non-cancelable operating leases as of ~~September 30, 2022,~~March 31, 2023, are as follows:


Year Ended December 31,	Amount			Amount
2022	$	562
2023		2,198		$	2,208
2024		2,123			2,134
2025		1,954			1,962
2026		1,726			1,727
2027					1,536
Thereafter		5,906			4,370
Total lease payments		14,469			13,937
Less: interest		(494	)		(345	)
Present value of lease liabilities	$	13,975		$	13,592

NOTE 9 - INCOME TAXES

Income tax expense was as follows for:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2022			2021			2022			2021			2023			2022
Income tax expense for the period	$	2,363		$	2,179		$	7,070		$	6,827		$	1,823		$	2,235
Effective tax rate		17.82	%		19.06	%		17.91	%		18.22	%		18.05	%		17.23	%

The effective tax rates differ from the statutory federal tax rate of 21% for the three and ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ largely due to tax exempt interest income earned on certain investment securities and loans.

NOTE 10 - DERIVATIVE FINANCIAL INSTRUMENTS

The Company utilizes certain derivative financial instruments. Stand-alone derivative financial instruments such as interest rate swaps, are used to economically hedge interest rate risk related to the Company’s liabilities. These derivative instruments involve both credit and market risk. The notional amounts are amounts on which calculations, payments, and the value of the derivative are based. Notional amounts do not represent direct credit exposures. Direct credit exposure is limited to the net difference between the calculated amounts to be received and paid, if any. Such difference, which represents the fair value of the derivative instruments, is reflected on the Company’s consolidated balance sheets in other ~~liabilities.~~liabilities, if applicable.

The Company is exposed to credit related losses in the event of nonperformance by the counterparties to those agreements. The Company controls the credit risk of its financial contracts through credit approvals, limits and monitoring procedures, and does not expect any counterparties to fail to perform their respective obligations.

The Company entered into interest rate swaps to receive payments at a fixed rate in exchange for paying a floating rate on the debentures discussed in Note 5. Management believed that entering into the interest rate swaps exposed the Company to variability in their fair value due to changes in the level of interest rates. It was the Company’s objective to hedge the change in fair value of floating rate debentures at coverage levels that were appropriate, given anticipated or existing interest rate levels and other market considerations, as well as the relationship of change in the liability to other liabilities of the Company. During the quarter ended September 30, 2021, Guaranty terminated these interest rate swaps with notional amounts totaling $~~5,000~~ ~~at the time of termination, as the risk exposure declined to acceptable levels.~~

In the first quarter of 2022, the Company ~~also~~ terminated interest rate swaps that were originally designed to receive payments at a floating rate in exchange for paying a fixed rate, the objective of which was to reduce the overall cost of short-term 3-month FHLB advances that were renewed consistent with the reset terms on the interest rate swaps. The swaps were cancelled at a net gain of $685, which is included in other ~~non-interest~~noninterest income in the Consolidated Statement of Earnings. ~~The interest rate swaps, with notional amounts totaling $40,000~~ ~~as of December 31, 2021, were designated as cash flow hedges of the FHLB advances.~~

~~(Continued)~~

~~28.~~

~~GUARANTY BANCSHARES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

As of December 31, 2021, the aggregate fair value of these swaps was recorded in accrued interest and other liabilities within the Company’s Consolidated Balance Sheet, with changes in fair value recorded in other comprehensive income.

~~The information pertaining to outstanding interest rate swap agreements used to hedge floating rate debentures and FHLB advances was as follows as of:~~

December 31, 2021

Notional
Amount

Pay
Rate

Receive
Rate

Effective
Date

Maturity
in Years

Unrealized
(Gains) Losses

$
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
)

Interest expense recorded on these swap transactions totaled $~~188~~ ~~and $~~63~~483~~ during the ~~nine~~three months ended ~~September 30, 2022 and 2021, respectively.~~March 31, 2022. This expense is reported as a component of interest expense on the debentures and the FHLB advances and federal funds purchased.

NOTE 11 - COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Company enters into various transactions, which, in accordance with GAAP, are not included in its consolidated balance sheets. These transactions are referred to as “off-balance sheet commitments.” The Company enters into these transactions to meet the financing needs of its customers. These transactions include commitments to extend credit and letters of credit, which involve elements of credit risk in excess of the amounts recognized

(Continued)

27.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

in the consolidated balance sheets. The Company minimizes its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures.

The Company enters into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Customers use credit commitments to ensure that funds will be available for working capital purposes, for capital expenditures and to ensure access to funds at specified terms and conditions. Substantially all of the Company’s commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding. Management considers the likelihood of commitments and letters of credit to be funded, along with credit related conditions present in the loan agreements when estimating an ACL for off-balance sheet commitments. Loan agreements executed in connection with construction loans and commercial lines of credit have standard conditions which must be met prior to the Company being required to provide additional funding, including conditions precedent that typically include: (i) no event of default or potential default has occurred; (ii) that no material adverse events have taken place that would materially affect the borrower or the value of the collateral, (iii) that the borrower remains in compliance with all loan obligations and covenants and has made no misrepresentations; (iv) that the collateral has not been damaged or impaired; (v) that the project remains on budget and in compliance with all laws and regulations; and (vi) that all management agreements, lease agreements and franchise agreements that affect the value of the collateral remain in force. If the conditions precedent have not been met, the Company retains the option to cease current draws and/or future funding. As a result of these conditions within our loan agreements, management has determined that credit risk is minimal and there is no recorded ACL with respect to these commitments as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.

Letters of credit are written conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The Company’s policies generally require that letters of credit arrangements contain security and debt covenants similar to those contained in loan agreements. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Company would be required to fund the commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount shown in the table below. If the commitment were funded, the Company would be entitled to seek recovery from the customer. Our credit risk associated with issuing letters of credit is essentially the same as the risk involved in extending loan facilities to our customers. As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, no amounts have been recorded as ~~liabilities~~an ACL for the Bank’s potential obligations under these guarantees.

~~(Continued)~~

~~29.~~

~~GUARANTY BANCSHARES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

Commitments and letters of credit outstanding were as follows as of:


	Contract or Notional Amount				Contract or Notional Amount
	September 30, 2022		December 31, 2021		March 31, 2023		December 31, 2022
Commitments to extend credit	$	529,373	$	405,269	$	464,307	$	474,745
Letters of credit		8,136		8,357		8,272		8,289

Litigation

The Company is involved in certain claims and lawsuits occurring in the normal course of business. Management, after consultation with legal counsel, does not believe that the outcome of these actions, if determined adversely, would have a material impact on the consolidated financial statements of the Company.

FHLB Letters of Credit

At ~~September 30, 2022,~~March 31, 2023, the Company had letters of credit of $~~21,883~~15,000 pledged to secure public deposits, repurchase agreements, and for other purposes required or permitted by law.

NOTE 12 - REGULATORY MATTERS

The Company on a consolidated basis and the Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain off balance sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

(Continued)

28.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

The Basel III Capital Rules, a comprehensive capital framework for U.S. banking organizations, became effective for the Company and Bank on January 1, 2015, with certain transition provisions that were fully phased in on January 1, 2019. Quantitative measures established by the Basel III Capital Rules to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth in the table below) of Common Equity Tier 1 capital, Tier 1 capital and Total capital (as defined in the regulations) to risk-weighted assets (as defined), and or Tier 1 capital to adjusted quarterly average assets (as defined). Management believes, as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, that the Bank met all capital adequacy requirements to which it was subject.

The Basel III Capital Rules, among other things, ~~have~~ (i) introduced a new capital measure called “Common Equity Tier 1” (“CET1”), (ii) specified that Tier 1 capital consist of CET1 and “Additional Tier 1 Capital” instruments meeting specified requirements, (iii) defined CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital, (iv) expanded the scope of the deductions/adjustments as compared to existing regulations, and (v) imposed a "capital conservation buffer" of 2.5% above minimum risk-based capital requirements, below which an institution would be subject to limitations on certain activities including payment of dividends, share repurchases and discretionary bonuses to executive officers.

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company’s capital ratios exceeded those levels necessary to be categorized as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized”, the Company must maintain minimum ~~total risk-based, CET1, Tier 1 risk-based and Tier 1 leverage~~capital ratios as set forth in the table. There are no conditions or events since ~~September 30, 2022~~March 31, 2023 that management believes have changed the Company’s category.

~~(Continued)~~The Federal Reserve’s guidelines regarding the capital treatment of trust preferred securities limits restricted core capital elements (including trust preferred securities and qualifying perpetual preferred stock) to 25% of all core capital elements, net of goodwill less any associated deferred tax liability. Because the Company’s aggregate amount of trust preferred securities is less than the limit of 25% of Tier 1 capital, net of goodwill, the rules permit the inclusion of $

~~30.~~7,217

~~GUARANTY BANCSHARES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollars~~ of trust preferred securities in ~~thousands, except per share amounts)~~Tier 1 capital as of both March 31, 2023 and December 31, 2022. Additionally, the rules provide that trust preferred securities would no longer qualify for Tier 1 capital within five years of their maturity, but would be included as Tier 2 capital. However, the trust preferred securities would be amortized out of Tier 2 capital by one-fifth each year and excluded from Tier 2 capital completely during the year prior to maturity of the subordinated debentures.

A comparison of the Company’s and Bank’s actual capital amounts and ratios to required capital amounts and ratios are presented in the following tables as of:


		Actual			Minimum Required For Capital Adequacy Purposes			Minimum Required Under Basel III (Including Buffer)			To Be Well Capitalized Under Prompt Corrective Action Provisions				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		Amount		Ratio	Amount		Ratio	Amount		Ratio	Amount		Ratio
September 30, 2022
March 31, 2023
Total capital to risk-weighted assets:
Consolidated		$	350,305	14.60%	$	191,962	8.00%	$	251,951	10.50%	n/a				$	363,916	14.57%	$	199,775	8.00%	$	262,204	10.50%	$	249,718	10.00%
Bank			350,271	14.60%		191,901	8.00%		251,870	10.50%	$	239,877	10.00%			370,244	14.84%		199,659	8.00%		262,053	10.50%		249,574	10.00%
Tier 1 capital to risk-weighted assets:
Consolidated			286,668	11.95%		143,972	6.00%		203,960	8.50%	n/a					298,241	11.94%		149,831	6.00%		212,260	8.50%		149,831	6.00%
Bank			321,036	13.38%		143,926	6.00%		203,895	8.50%		191,901	8.00%			339,038	13.58%		149,744	6.00%		212,138	8.50%		199,659	8.00%
Tier 1 capital to average assets:(1)
Consolidated			286,668	8.63%		132,924	4.00%		132,924	4.00%	n/a					298,241	9.00%		132,598	4.00%		132,598	4.00%	n/a
Bank			321,036	9.68%		132,709	4.00%		132,709	4.00%		165,886	5.00%			339,038	10.24%		132,501	4.00%		132,501	4.00%		165,626	5.00%
Common equity tier 1 capital to risk-weighted assets:
Consolidated			279,451	11.65%		107,979	4.50%		167,967	7.00%	n/a					291,024	11.65%		112,373	4.50%		174,803	7.00%	n/a
Bank			321,036	13.38%		107,944	4.50%		167,914	7.00%		155,920	6.50%			339,038	13.58%		112,308	4.50%		174,702	7.00%		162,223	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.	(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.													(1) The Tier 1 capital ratio (to average assets) is not impacted by the Basel III Capital Rules; however, the Federal Reserve and the FDIC may require the Consolidated Company and the Bank, respectively, to maintain a Tier 1 capital ratio (to average assets) above the required minimum.

Actual

Minimum Required
For Capital
Adequacy Purposes

Minimum Required
Under Basel III
(Including Buffer)

To Be Well
Capitalized Under
Prompt Corrective
Action Provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

Amount

Ratio
December 31, 2021

Total capital to risk-weighted assets:

Consolidated

$
297,370

14.51%

$
163,986

8.00%

$
215,232

10.50%

n/a
Bank

311,335

15.19%

163,936

8.00%

215,166

10.50%

$
204,920

10.00%
Tier 1 capital to risk-weighted assets:

Consolidated

271,696

13.25%

122,990

6.00%

174,235

8.50%

n/a
Bank

285,661

13.94%

122,952

6.00%

174,182

8.50%

163,936

8.00%
Tier 1 capital to average assets:(1)

Consolidated

271,696

9.18%

118,369

4.00%

118,369

4.00%

n/a
Bank

285,661

9.66%

118,345

4.00%

118,345

4.00%

147,931

5.00%
Common equity tier 1 capital to risk-weighted assets:

Consolidated

261,386

12.75%

92,242

4.50%

143,488

7.00%

n/a
Bank

285,661

13.94%

92,214

4.50%

143,444

7.00%

133,198

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.

(Continued)

29.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)


	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
December 31, 2022
Total capital to risk-weighted assets:
Consolidated	$	358,702	14.37%	$	199,687	8.00%	$	262,089	10.50%	$	249,608	10.00%
Bank		361,125	14.48%		199,570	8.00%		261,936	10.50%		249,463	10.00%
Tier 1 capital to risk-weighted assets:
Consolidated		292,966	11.74%		149,765	6.00%		212,167	8.50%		149,765	6.00%
Bank		329,933	13.23%		149,678	6.00%		212,044	8.50%		199,570	8.00%
Tier 1 capital to average assets:(1)
Consolidated		292,966	8.77%		133,614	4.00%		133,614	4.00%	n/a
Bank		329,933	9.89%		133,375	4.00%		133,375	4.00%		166,718	5.00%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		285,749	11.45%		112,324	4.50%		174,726	7.00%	n/a
Bank		329,933	13.23%		112,258	4.50%		174,624	7.00%		162,151	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.

Dividends paid by Guaranty are mainly provided by dividends from its subsidiaries. However, certain regulatory restrictions exist regarding the ability of its bank subsidiary to transfer funds to Guaranty in the form of cash dividends, loans or advances. The amount of dividends that a subsidiary bank organized as a national banking association, such as the Bank, may declare in a calendar year is the subsidiary bank’s net profits for that year combined with its retained net profits for the preceding two years. Retained net profits, as defined by the OCC, consist of net income less dividends declared during the period.

~~(Continued)~~

~~31.~~

~~GUARANTY BANCSHARES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

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).~~

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

(Continued)

30.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

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).

~~(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)
March 31, 2023									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	$	—	$	123,578	$	—	$	123,578	$	—
Collateralized mortgage obligations		21,802		—		21,802		—		19,123		—		19,123		—
Municipal securities		9,417		—		9,417		—		3,402		—		3,402		—
Corporate bonds		33,110		—		33,110		—		27,641		—		27,641		—
Loans held for sale		2,749		—		—		2,749		1,260		—		—		1,260
Cash surrender value of life insurance		38,194		—		38,194		—		38,619		—		38,619		—
SBA servicing assets		899		—		—		899		808		—		—		808

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)
December 31, 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	$	221,308		$	—	$	221,308		$	—	$	130,341	$	—	$	130,341	$	—
Collateralized mortgage obligations		74,992			—		74,992			—		20,157		—		20,157		—
Municipal securities												10,642		—		10,642		—
Corporate bonds		35,935			—		35,935			—		27,787		—		27,787		—
U.S. government agencies		9,971			—		9,971			—
Loans held for sale		4,129			—		—			4,129		3,156		—		—		3,156
Cash surrender value of life insurance		37,141			—		37,141			—		38,404		—		38,404		—
SBA servicing assets		877			—		—			877		874		—		—		874
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 ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 or ~~for~~during the year ended December 31, ~~2021.~~2022.

(Continued)

31.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

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 ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ and December 31, ~~2021,~~2022, there were no foreclosed assets that were remeasured and recorded at fair value.

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, there were no nonrecurring level 3 fair value measurements requiring quantitative information.

~~(Continued)~~There were

~~33.~~no

~~GUARANTY BANCSHARES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~The following table presents information on~~ individually evaluated collateral dependent loans included in the ACL model as of March 31, 2023 or 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~~March 31, 2023 and December 31, ~~2021,~~2022, are as follows:


	Fair value measurements as of September 30, 2022 using:										Fair value measurements as of March 31, 2023 using:
	Carrying Amount		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value		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	$	158,125	$	158,125	$	—	$	—	$	158,125
Marketable securities held to maturity		633,386		—		595,844		—		595,844		476,105		—		444,304		—		444,304
Loans, net		2,234,782		—		—		2,147,119		2,147,119		2,344,240		—		—		2,197,175		2,197,175
Accrued interest receivable		10,111		—		10,111		—		10,111		10,443		—		10,443		—		10,443
Nonmarketable equity securities		23,529		—		23,529		—		23,529		29,211		—		29,211		—		29,211
Financial liabilities:
Deposits	$	2,790,510	$	2,450,301	$	339,007	$	—	$	2,789,308	$	2,623,368	$	2,150,050	$	470,651	$	—	$	2,620,701
Securities sold under repurchase agreements		7,592		—		7,592		—		7,592		13,338		—		13,338		—		13,338
Accrued interest payable		1,192		—		1,192		—		1,192		3,863		—		3,863		—		3,863
Federal Home Loan Bank advances		225,000		—		224,675		—		224,675		340,000		—		339,952		—		339,952
Subordinated debt		51,119		—		51,275		—		51,275		49,186		—		49,601		—		49,601


	Fair value measurements as of December 31, 2021 using:										Fair value measurements as of December 31, 2022 using:
	Carrying Amount		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value		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	$	106,467	$	106,467	$	—	$	—	$	106,467
Marketable securities held to maturity		184,263		—		192,472		—		192,472		509,008		—		475,068		—		475,068
Loans, net		1,876,076		—		—		1,883,756		1,883,756		2,344,245		—		—		2,217,606		2,217,606
Accrued interest receivable		8,901		—		8,901		—		8,901		11,555		—		11,555		—		11,555
Nonmarketable equity securities		15,344		—		15,344		—		15,344		25,585		—		25,585		—		25,585
Financial liabilities:
Deposits	$	2,670,827	$	2,341,048	$	330,356	$	—	$	2,671,404	$	2,681,154	$	2,326,615	$	351,981	$	—	$	2,678,596
Securities sold under repurchase agreements		14,151		—		14,151		—		14,151		7,221		—		7,221		—		7,221
Accrued interest payable		481		—		481		—		481		2,348		—		2,348		—		2,348
Federal Home Loan Bank advances		47,500		—		47,501		—		47,501		290,000		—		289,926		—		289,926
Subordinated debt		19,810		—		17,833		—		17,833		49,153		—		50,025		—		50,025

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).

(Continued)

32.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

Marketable Securities Held to Maturity: The fair values for marketable securities held to maturity 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).

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. Net losses attributable to the noncontrolling interest during the ~~quarter and nine~~three months ended ~~September 30, 2022~~March 31, 2023 were $34, and $21~~, respectively, and are~~is excluded from this calculation. There were no earnings or losses attributable to the noncontrolling interest during the three months ended March 31, 2022. Diluted earnings per share reflects the maximum potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and would then share in the net earnings of the Company. Dilutive share equivalents include stock-based awards issued to employees.

Stock options granted by the Company are treated as potential shares in computing 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.

(Continued)

33.

GUARANTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

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


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2022		2021		2022		2021		2023		2022
Numerator:
Net earnings attributable to Guaranty Bancshares, Inc.	$	10,903	$	9,253	$	32,425	$	30,647	$	8,281	$	10,738

Denominator:
Weighted-average shares outstanding (basic)		11,907,233		12,067,769		11,994,105		12,054,426		11,939,593		12,109,074
Effect of dilutive securities:
Common stock equivalent shares from stock options		125,158		143,620		125,344		155,058		72,411		151,871
Weighted-average shares outstanding (diluted)		12,032,391		12,211,389		12,119,449		12,209,484		12,012,004		12,260,945

Net earnings attributable to Guaranty Bancshares, Inc. per share
Basic	$	0.92	$	0.77	$	2.70	$	2.54	$	0.69	$	0.89
Diluted	$	0.91	$	0.76	$	2.68	$	2.51	$	0.69	$	0.88

(Continued)

~~35.~~34.

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.~~2022. 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~~began trading on the ~~NASDAQ~~Nasdaq Global Select Market until March 7, 2023, at which time our listing was transferred to the New York Stock Exchange, where our common stock continues to trade under the symbol ~~“GNTY.”~~"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 shareholders' equity, are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions and conditions in domestic and foreign financial markets. Periodic changes in the volume and types of loans in our loan portfolio are affected by, among other factors, economic and competitive conditions in Texas, as well as developments affecting the real estate, technology, financial services, insurance, transportation, manufacturing and energy sectors within our target markets and throughout the State of Texas.

~~Quarterly Highlights~~RISK MANAGEMENT HIGHLIGHTS

~~Quarterly~~In light of recent events, we are providing additional information below to highlight various risk management practices, as well as additional detail around the lower risk nature, composition and size of our loans, deposits and investment securities. These highlights help illustrate the more traditional and stable nature of ~~the Company include:~~our Bank model.

•

~~Strong Loan Growth. The third~~Granular and Reliable Deposit Base. As of March 31, 2023, we have 84,233 total deposit accounts with an average balance of $31,148. Excluding time deposits, 56.8% of our depositors have been customers of our Bank for more than 5 years and 89.0% have been customers for more than one year. We have a historically reliable core deposit base, with strong and trusted banking relationships, which was illustrated by an increase in total deposits of $8.3 million during March, despite general consumer uncertainty caused by the two bank failures in mid-March. Total deposits decreased $57.3 million in January, decreased by $8.8 million in February and increased by $8.3 million in March of 2023.

(Continued)

35.

As of March 31, 2023, our deposits accounts consisted of the following:


	March 31, 2023
(dollars in thousands)	Balance		Number of Accounts		Average Balance		% of Total Deposits
Consumer	$	1,379,264		71,635	$	19		52.6	%
Commercial		960,904		12,040		80		36.6	%
Public funds		283,200		548		517		10.8	%
Total deposits	$	2,623,368		84,223	$	31		100.0	%

Our level of uninsured deposits, excluding affiliate deposits (Guaranty-owned funds), public funds (all of which are collateralized) and director/officer accounts, is 30.3%. As of March 31, 2023, our total uninsured deposits of $994.1 million consisted of the following:


	March 31, 2023
(dollars in thousands)	Balance			Uninsured Balance			% Uninsured of Total Deposits
Affiliate deposits	$	13,768		$	12,708			0.5	%
Customers		2,267,628			686,464			26.2	%
Public funds		283,200			267,072			10.2	%
Directors and officers		58,772			27,835			1.1	%
Total	$	2,623,368		$	994,079			37.9	%

Excluding public funds	$	(283,200	)	$	(267,072	)
Excluding affiliate deposits		(13,768	)		(12,708	)
Total, excluding public funds and affiliate deposits	$	2,326,400		$	714,299			30.7	%

Excluding directors and officers	$	(58,772	)	$	(27,835	)
Total, excluding public funds, affiliate deposits and directors and officers	$	2,267,628		$	686,464			30.3	%

As an additional resource to our uninsured depositors, we implemented the IntraFi CDARS program in late March 2023, which we began offering to our customers beginning April 1, 2023. This program allows deposit customers to obtain full FDIC deposit insurance while maintaining one time deposit relationship with our Bank.

We continued to increase interest rates paid on deposits during the quarter in order to pay competitive rates, however noninterest-bearing deposits continue to represent 37.8% of total deposits. Our cost of interest-bearing deposits increased 83 basis points during the quarter from 1.08% in the prior quarter to 1.91%, representing a beta on interest-bearing deposits of approximately 96.4% for the linked quarter. Our cost of total deposits (cost of funds) for the first quarter of 2023 increased 54 basis points from 0.64% in the prior quarter to 1.18%, representing a beta on total deposits of approximately 62.7% for the linked quarter.

On a trailing 12 month basis, our cost of interest-bearing deposits increased 66 basis points, from 0.32% at March 31, 2022 ~~saw strong organic loan growth, increasing $127.7 million, or 6.0%~~to 0.98% at March 31, 2023, representing a beta on interest-bearing deposits of approximately 24.5%. Our cost of total deposits increased 39 basis points from 0.20% at March 31, 2022 to 0.59%, ~~during the quarter. Excluding PPP and warehouse lending changes, our loans increased $144.1 million, or 6.8%, during the quarter. Our loan growth is~~representing a ~~result~~beta on total deposits of ~~internally generated sources and is not from loan purchases from other originators.~~

approximately 14.5%.

•

~~Solid Net Earnings~~Granular Loan Portfolio and ~~Core Earnings. Net earnings~~Concentration Risk. Loan concentrations create risk that should be closely monitored and limited. We do not have ~~trended upward quarter-over-quarter, with net earnings~~significant concentrations to any one borrower, industry or geography, other than loans within Texas. Our credit administration committee meets at least monthly and ~~earnings per share~~monitors the loan portfolio against internal guidelines and limits using NAICS codes, industry classifications, geography, call report codes and other metrics. Although our legal loan limit is nearly $54.2 million, we have an internal loan limit of ~~$10.8~~$30.0 million and ~~$0.90~~rarely approve large loans without a significant borrower relationship and ~~$10.9 million and $0.92~~robust underwriting. As shown in the ~~second~~table below, our large loan concentration commitments 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~~outstanding balances as of ~~2022, and $9.7 million during the third quarter of 2021.~~March 31, 2023 are reasonable:


	March 31, 2023
(dollars in thousands)	Number of Accounts		Total Commitment		Balance		Weighted Average LTV
> $ 5 million		65	$	459,788	$	363,314		69.99	%
> $ 10 million		10		139,513		93,544		50.98	%
> $ 20 million		2		43,240		31,103		58.22	%
Total		77	$	642,541	$	487,961		65.07	%

(Continued)

36.

Commercial real estate (CRE) loans, particularly office related loans, have received increased scrutiny in recent months. Our CRE loans and real estate C&D loans represent 37.9% and 15.7% of the total loan portfolio, respectively. Office related loans represent 4.0% of the total loan portfolio, have an average balance of $504,000, 46.5% are owner occupied and only 21 of the 189 loans have committed balances over $1.0 million.

The table below illustrates the diversity of our portfolio as well as the relatively large number of lower average balance loans as of March 31, 2023:


	March 31, 2023
(dollars in thousands)	Balance		Number of Accounts		Average Balance		% of Total Loans
Commercial and industrial	$	295,936		1,893	$	156		12.4	%
Real estate:
Construction and development		372,203		902		413		15.7	%
Commercial real estate		900,190		1,057		852		37.9	%
Farmland		190,802		527		362		8.0	%
1-4 family residential		499,944		2,999		167		21.0	%
Multi-family residential		44,760		36		1,243		1.9	%
Consumer		60,163		4,331		14		2.5	%
Agricultural		13,545		336		40		0.6	%
Overdrafts		270		—		—		0.0	%
Total loans	$	2,377,813		12,081	$	197		100.0	%

•

Good Asset Quality. ~~Non-performing~~ Nonperforming assets as a percentage of total assets were ~~0.28%~~0.40% at ~~September 30, 2022,~~March 31, 2023, compared to ~~0.30%~~0.32% at ~~June 30,~~December 31, 2022 and ~~0.11%~~0.08% at ~~September 30, 2021.~~March 31, 2022. Net charge-offs (annualized) to average loans were ~~0.07%~~0.00% for the quarter ended ~~September 30,~~March 31, 2023, compared to 0.01% for the quarter ended December 31, 2022, ~~compared to~~and 0.02% for the quarter ended ~~June 30, 2022,~~March 31, 2022. Consistent with our CECL methodology, we calculated and ~~0.05% for the quarter ended September 30, 2021. A~~recorded a provision for credit losses of ~~$600,000 was recorded~~$2.8 million 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~~as we incorporated recession forecasts ~~in 2023.~~for 2023 into our CECL model at that time. Due to minimal loan growth, minimal net charge-offs and minimal downward risk rating migrations during the first quarter of 2023, no additional ACL provision was necessary.

•

~~Repricing~~Conservative Investment Portfolio. Our investment policies and ~~Asset Liability Management.~~strategies only allow for non-complex investments with little or no credit risk. Strategically, we strive to maintain an average life in the portfolio of five years or less, with longer duration securities usually in high quality municipal bonds in areas we are familiar with. We also monitor portfolio cash flows to ensure a good source of near term liquidity, as well as defensive cash flows as duration extends. During late 2021 and early 2022, we had significant excess cash but did not believe the low yields on investments at that time warranted the interest rate risk. To slightly improve the yields meant investing in securities with much longer lives. Because of this disciplined approach, our total unrealized losses, including both AFS and HTM securities are manageable and low. The ~~Bank is slightly asset-sensitive~~table below presents total unrealized losses as of March 31, 2023, along with estimated unrealized losses if interest rates increase or decrease by 100 basis points.


	March 31, 2023				Net Unrealized Loss
(dollars in thousands)	Amortized Cost		Estimated Fair Value		-100 bps			Actual			+100 bps
Available for sale	$	193,121	$	173,744	$	(11,295	)	$	(19,377	)	$	(27,366	)
Held to maturity		476,105		444,304		(14,770	)		(31,801	)		(49,041	)

•

Strong Capital and ~~should see benefits from expected rate increases~~Liquidity. Our capital and liquidity ratios, as well as contingent liquidity sources, remain solid. We are taking advantage of low stock prices to repurchase shares of Company stock. During the first quarter of 2023, we repurchased 25,709 shares at an average price of $28.95 per share. Our liquidity ratio, calculated as cash, fed funds sold and non-pledged investments divided by total liabilities, was 14.7% as of quarter-end. Contingent liquidity sources and availability as of March 31 are provided below. Although we do not plan to access the Federal ~~Reserve in November and December~~Reserve's Bank Term Funding Program (BTFP), we have $282.3 million of ~~2022. We continue to be well-positioned~~borrowing capacity based on the value of unpledged, par-value, securities available as collateral for ~~loan funding and liquidity with a loan-to-deposit ratio at quarter-end~~this line. The table below shows our total lines of ~~81.2%. Our FHLB advances were $225.0 million~~credit, current borrowings as of ~~September 30, 2022~~March 31, 2023 and ~~are expected to be paid down~~total amounts available for future borrowings, if necessary.

(Continued)

37.


	March 31, 2023				Total Available for Future Liquidity
(dollars in thousands)	Line of Credit		Borrowings
FHLB advances	$	1,097,558	$	340,000	$	757,558
Federal Reserve discount window		243,900		—		243,900
Federal funds lines of credit		55,000		—		55,000
Correspondent bank line of credit		25,000		—		25,000
Federal Reserve Bank Term Funding Program		282,342		—		282,342
Total liquidity lines					$	1,363,800

The table below provides total equity information as if the unrealized loss on HTM securities was recognized as a reduction 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 September 30, 2022, $264.5 million, or 11.7%total equity. This information illustrates the strength of our loan portfolio is fully floating and $1.2 billion, or 52.8% are adjustable rate term loans, repricing at defined future time periods. Additional Fed rate increases will result in the repricing of approximately $354.5 million, or 15.7%, of our total loans by December 31, 2022. Although we have raised interest rates paidcapital, even with net unrealized losses on deposit accounts, we have maintained a conservative approach to increases thus far in 2022, but anticipate continued upward trends in deposit betas during 2023. A total of 40.9% of our deposits are noninterest-bearing and total cost of funds on total deposits during the third quarter was 0.35%.all investment securities considered.


(dollars in thousands)	March 31, 2023
Total equity(1)	$	300,270
Less: net unrealized loss on HTM securities, tax effected		(25,123	)
Total equity, including net unrealized loss on AFS and HTM securities†	$	275,147

Net unrealized loss on AFS securities, tax effected		15,308
Net unrealized loss on HTM securities, tax effected		25,123
Net unrealized loss on AFS and HTM securities, tax effected	$	40,431

Net unrealized loss on securities as % of total equity(1)		13.5	%
Total equity before impact of unrealized losses†	$	315,578
Net unrealized loss on securities as % of total equity before impact of unrealized losses†		12.8	%

Total average assets	$	3,325,005
Total equity to average assets		9.0	%
Total equity, adjusted for tax effected net unrealized loss, to average assets†		8.3	%

(1) Includes the net unrealized loss on AFS securities, tax effected, of $15,308.
† Non-GAAP financial metric. Calculations of this metric and reconciliations to GAAP are included in subsequent sections of this MD&A.

~~† 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 ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~

Results of Operations

The following discussion and analysis compares our results of operations for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 with the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. The results of operations for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, ~~2022.~~2023.

Net earnings attributable to Guaranty Bancshares, Inc. (which excludes the minority interest of consolidated subsidiaries) were ~~$32.4~~$8.3 million for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, as compared to ~~$30.6~~$10.7 million for the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. The following table presents key earnings data for the periods indicated:


		Nine Months Ended September 30,							Quarter Ended March 31,
(dollars in thousands, except per share data)		2022			2021				2023			2022
Net earnings attributable to Guaranty Bancshares, Inc.		$	32,425		$	30,647			$	8,281		$	10,738
Net earnings attributable to Guaranty Bancshares, Inc. per common share
-basic			2.70			2.54				0.69			0.89
-diluted			2.68			2.51				0.69			0.88
Net interest margin(1)			3.49	%		3.52	%			3.25	%		3.33	%
Net interest rate spread(2)			3.26	%		3.35	%			2.36	%		3.18	%
Return on average assets			1.34	%		1.42	%			1.01	%		1.38	%
Return on average equity			14.73	%		14.32	%			11.18	%		14.44	%
Average equity to average total assets			9.11	%		9.90	%			9.04	%		9.59	%
Cash dividend payout ratio			24.44	%		23.62	%			33.33	%		24.72	%

(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~~Participation in the ~~provision~~PPP1 and PPP2 program, as well as economic and COVID-related provisions for credit losses, ~~resulting from effects of COVID-19 and participation in the PPP program, have~~ created temporary extraordinary results in the calculation of net earnings and related performance ratios in comparable

(Continued)

38.

prior periods. The following table illustrates net earnings and net core earnings ~~attributable to Guaranty Bancshares, Inc. and net~~

~~(Continued)~~

~~37.~~

~~core earnings attributable to Guaranty Bancshares, Inc. per share,~~results, which are pre-tax, pre-provision and pre-extraordinary PPP income, as well as net core performance ratios for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.


	Nine Months Ended September 30,							Quarter Ended March 31,
(dollars in thousands, except per share data)	2022			2021				2023			2022
Net earnings attributable to Guaranty Bancshares, Inc.	$	32,425		$	30,647			$	8,281		$	10,738
Adjustments:
Reversal of provision for credit losses		(650	)		(1,700	)
Provision for (reversal of) credit losses									—			(1,250	)
Income tax provision		7,070			6,827				1,823			2,235
PPP interest income, including fees		(1,276	)		(6,864	)			(2	)		(783	)
Net core earnings attributable to Guaranty Bancshares, Inc.†	$	37,569		$	28,910			$	10,102		$	10,940

Total average assets	$	3,231,679		$	2,889,882			$	3,325,005		$	3,146,339
Adjustments:
PPP loans average balance		(15,581	)		(133,309	)			(519	)		(36,720	)
Total average assets, adjusted†	$	3,216,098		$	2,756,573			$	3,324,486		$	3,109,619
Total average equity	$	294,395		$	286,228			$	300,449		$	301,579

PERFORMANCE RATIOS
Net earnings attributable to Guaranty Bancshares, Inc. to average assets (annualized)		1.34	%		1.42	%			1.01	%		1.38	%
Net earnings attributable to Guaranty Bancshares, Inc. to average equity (annualized)	$	14.73		$	14.32			$	11.18		$	14.44
Net core earnings attributable to Guaranty Bancshares, Inc. to average assets, as adjusted (annualized)†		1.56			1.40				1.23			1.43
Net core earnings attributable to Guaranty Bancshares, Inc. to average equity (annualized)†		17.06			13.50				13.64			14.71

PER COMMON SHARE DATA
Weighted-average common shares outstanding, basic		11,994,105			12,054,426				11,939,593			12,109,074
Earnings per common share, basic	$	2.70		$	2.54			$	0.69		$	0.89
Net core earnings attributable to Guaranty Bancshares, Inc. per common share, basic†		3.13			2.40				0.85			0.90

† 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, for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ was ~~$79.5~~$25.2 million and ~~$71.5~~$24.3 million, respectively, an increase of ~~$7.9 million,~~$839,000, or ~~11.1%~~3.4%. The increase in net interest income ~~before the reversal of the provision for credit losses,~~ resulted primarily from a ~~$10.5~~$11.3 million, or ~~13.6%~~43.5%, increase in interest income, which was ~~partially~~ offset by an increase in interest expense of ~~$2.5~~$10.4 million, or ~~45.9%~~663.2%. Interest income on loans increased ~~$4.7~~$9.9 million, or ~~6.7%~~44.4%, during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 compared to the same period in ~~2021. In addition, interest income on securities increased $5.4 million, or 82.1% during the same period.~~

2022. Average loans outstanding, excluding PPP loans, for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 was ~~$2.05~~$2.39 billion, compared to ~~$1.77~~$1.90 billion for the same period in ~~2021,~~2022, an increase of ~~$277.3~~$487.2 million, or ~~15.6%~~25.6%. The increase in average loans outstanding was due to organic growth. In addition, interest income on securities increased $1.0 million, or 32.7%, during the same period.

The ~~$2.5~~$10.4 million increase in interest expense for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 was primarily related to a ~~$1.1~~$3.7 million increase in interest on FHLB advances and a ~~$90.5~~$6.4 million increase in interest expense on deposits despite a $85.5 million, or ~~5.7%~~5.0%, ~~increase~~decrease in average interest-bearing ~~deposits, along with~~deposits. The increase in deposit-related interest expense was due to a ~~five~~162 basis point increase in average rate paid on these deposits over the same period in 2021. 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.2022.

For the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, net interest margin on a taxable equivalent basis and net interest spread were ~~3.53%~~3.24% and ~~3.26%~~2.36%, respectively, compared to ~~3.56%~~3.37% and ~~3.35%~~3.18% for the same period in ~~2021,~~2022, which reflects a 14a 126 basis point increase in the yield on interest-earning assets offset by 208 basis point increase in the rate on interest-bearing liabilities ~~offset somewhat by a five basis point increase in the yield on interest-earning assets~~ from the prior period. The increase in ~~rate on interest-bearing liabilities~~rates from the prior period is

~~(Continued)~~

~~38.~~

primarily due to market rate conditions ~~and increased subordinated debt and FHLB advances~~ during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 compared to the same period of the prior year.

(Continued)

39.

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 ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 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.


		Nine Months Ended September 30,																	Quarter Ended March 31,
		2022								2021									2023								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
ASSETS
Interest-earning assets:
Total loans(1)		$	2,066,529		$	74,314		4.81	%	$	1,906,989		$	69,664		4.88	%		$	2,388,045		$	32,157		5.46	%	$	1,937,000		$	22,272		4.66	%
Securities available for sale			316,386			4,330		1.83			372,707			5,481		1.97				184,572			1,068		2.35			328,737			1,618		2.00
Securities held to maturity			499,092			7,567		2.03			39,269			1,054		3.59				502,760			3,050		2.46			347,188			1,485		1.73
Nonmarketable equity securities			16,937			869		6.86			10,042			612		8.15				28,381			419		5.99			15,234			408		10.86
Interest-bearing deposits in other banks			145,936			409		0.37			391,096			221		0.08				34,986			450		5.22			334,871			110		0.13
Total interest-earning assets			3,044,880			87,489		3.84			2,720,103			77,032		3.79				3,138,744			37,144		4.80			2,963,030			25,893		3.54
Allowance for credit losses			(29,341	)							(32,338	)								(31,934	)							(30,205	)
Noninterest-earning assets			216,140								202,117									218,195								213,514
Total assets		$	3,231,679							$	2,889,882								$	3,325,005							$	3,146,339
LIABILITIES AND EQUITY
Interest-bearing liabilities:
Interest-bearing deposits		$	1,684,725		$	5,320		0.42	%	$	1,594,219		$	4,444		0.37	%		$	1,624,610		$	7,655		1.91	%	$	1,710,157		$	1,242		0.29	%
Advances from FHLB and fed funds purchased			96,462			1,447		2.01			49,581			308		0.83				310,103			3,774		4.94			37,722			46		0.49
Line of credit			—			34		—			6,506			174		3.58				—			—		—			3,778			34		3.65
Subordinated debt			46,024			1,208		3.51			19,810			558		3.77				49,164			540		4.45			30,492			246		3.27
Securities sold under agreements to repurchase			8,920			9		0.13			16,044			10		0.08				10,974			13		0.48			10,916			2		0.07
Total interest-bearing liabilities			1,836,131			8,018		0.58			1,686,160			5,494		0.44				1,994,851			11,982		2.44			1,793,065			1,570		0.36
Noninterest-bearing liabilities:
Noninterest-bearing deposits			1,075,941								892,260									1,002,793								1,027,429
Accrued interest and other liabilities			25,212								25,234									26,912								24,266
Total noninterest-bearing liabilities			1,101,153								917,494									1,029,705								1,051,695
Equity			294,395								286,228									300,449								301,579
Total liabilities and equity		$	3,231,679							$	2,889,882								$	3,325,005							$	3,146,339
Net interest rate spread(2)								3.26	%							3.35	%								2.36	%							3.18	%
Net interest income					$	79,471							$	71,538								$	25,162							$	24,323
Net interest margin(3)								3.49	%							3.52	%								3.25	%							3.33	%
Net interest margin, fully taxable equivalent(4)								3.53	%							3.56	%								3.24	%							3.37	%

(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 $1.7 million and $3.2 million for the three months ended March 31, 2023 and 2022, respectively.																		(1) Includes average outstanding balances of loans held for sale of $1.7 million and $3.2 million for the three months ended March 31, 2023 and 2022, 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.~~40.

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 ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:


		For the Nine Months Ended																			For the Three Months Ended
		September 30, 2022									September 30, 2021										March 31, 2023									March 31, 2022
(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		$	3,044,880		$	87,489			3.84	%	$	2,720,103		$	77,032			3.79	%		$	3,138,744		$	37,144			4.80	%	$	2,963,030		$	25,893			3.54	%

Total loans			2,066,529			74,314			4.81			1,906,989			69,664			4.88				2,388,045			32,157			5.46			1,937,000			22,272			4.66
Adjustments:
PPP loans average balance and net fees(1)			(15,581	)		(1,276	)		10.95			(133,309	)		(6,265	)		6.28				(519	)		(2	)		1.56			(36,720	)		(783	)		8.65
Total loans, net of PPP effects		$	2,050,948		$	73,038			4.76	%	$	1,773,680		$	63,399			4.78	%		$	2,387,526		$	32,155			5.46	%	$	1,900,280		$	21,489			4.59	%

Total interest-earning assets, net of PPP effects†		$	3,029,299		$	86,213			3.81	%	$	2,586,794		$	70,767			3.66	%		$	3,138,225		$	37,142			4.80	%	$	2,926,310		$	25,110			3.48	%

Net interest income, fully taxable equivalent ("FTE")					$	80,294								$	72,336									$	25,103								$	24,624
Net interest margin, FTE									3.53	%								3.56	%									3.24	%								3.37	%
Net interest income, FTE, net of PPP effects†						79,018									66,071										25,101									23,841
Net interest margin, FTE, net of PPP effects†									3.49	%								3.41	%									3.24	%								3.30	%

† 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 $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 $1,000 and $89,000, and net origination fees recognized in earnings of $1,000 and $694,000 for the three months ended March 31, 2023 and 2022, respectively.																				(1) Interest earned consists of interest income of $1,000 and $89,000, and net origination fees recognized in earnings of $1,000 and $694,000 for the three months ended March 31, 2023 and 2022, 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 Nine Months Ended September 30, 2022 vs. 2021									For the Three Months Ended March 31, 2023 vs. 2022
	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	$	5,839		$	(1,189	)	$	4,650		$	5,255		$	4,630		$	9,885
Securities available for sale		(830	)		(321	)		(1,151	)		(711	)		161			(550	)
Securities held to maturity		12,347			(5,834	)		6,513			660			905			1,565
Nonmarketable equity securities		420			(163	)		257			352			(341	)		11
Interest-earning deposits in other banks		(147	)		335			188			(96	)		436			340
Total increase (decrease) in interest income	$	17,629		$	(7,172	)	$	10,457
Total increase in interest income										$	5,460		$	5,791		$	11,251

Interest-bearing liabilities:
Interest-bearing deposits	$	250		$	626		$	876		$	(61	)	$	6,474		$	6,413
Advances from FHLB and fed funds purchased		291			848			1,139			329			3,399			3,728
Line of credit		(174	)		34			(140	)		(34	)		—			(34	)
Subordinated debt		739			(89	)		650			151			143			294
Securities sold under agreements to repurchase		(4	)		3			(1	)		—			11			11
Total increase in interest expense		1,102			1,422			2,524			385			10,027			10,412
Increase (decrease) in net interest income	$	16,527		$	(8,594	)	$	7,933		$	5,075		$	(4,236	)	$	839

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.~~41.

During the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, we recorded ~~a reverse~~no additional provision for credit losses, ~~of $650,000,~~ compared to a reverse provision of ~~$1.7~~$1.3 million during the same period in ~~2021. At~~2022. During the onset of the COVID pandemic 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 a $1.25 million reverse provision during the 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, and during the thirdfourth quarter of 2022, we recorded a ~~$600,000~~$2.8 million provision to incorporate economic forecasts for ~~credit losses to account for~~a recession into our CECL model. The factors that were adjusted in the ~~continued organic~~fourth quarter of 2022 are still relevant and the economic projections remain consistent. Furthermore, there was minimal growth in the loan ~~growth.~~portfolio during the quarter, risk ratings have remained consistent and no other qualitative factors necessitated significant changes during the first quarter 2023. As of ~~September 30, 2022,~~March 31, 2023, our allowance for credit losses as a percentage of total loans was ~~1.29%~~1.34%.

As of ~~September 30, 2022,~~March 31, 2023, there were ~~$9.9~~$17.3 million in loan balances past due 30 or more days, including ~~$7.5~~$11.9 million in loan balances for nonperforming (nonaccrual) loans, compared to ~~$5.9~~$9.9 million and ~~$2.8~~$7.5 million, respectively, as of December 31, ~~2021,~~2022, and ~~$5.5~~$13.1 million and ~~$3.1~~$2.7 million, respectively, as of ~~September 30, 2021.~~March 31, 2022.

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 ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ and the period-over-period variations in the categories of noninterest income:


	Nine Months Ended September 30,				Increase (Decrease)			Quarter Ended March 31,				Increase (Decrease)
(in thousands)	2022		2021		2022 vs. 2021			2023		2022		2023 vs. 2022
Noninterest income:
Service charges	$	3,192	$	2,687	$	505		$	1,077	$	976	$	101
Gain on sales of investment securities									93		—		93
Gain on sale of loans		2,125		4,401		(2,276	)		314		905		(591	)
Fiduciary and custodial income		1,856		1,718		138			638		642		(4	)
Bank-owned life insurance income		633		633		—			214		211		3
Merchant and debit card fees		5,410		5,048		362			1,674		1,611		63
Loan processing fee income		611		481		130			134		187		(53	)
Warehouse lending fees		254		648		(394	)
Mortgage fee income		308		479		(171	)		68		131		(63	)
Other noninterest income		3,974		2,443		1,531			693		1,816		(1,123	)
Total noninterest income	$	18,363	$	18,538	$	(175	)	$	4,905	$	6,479	$	(1,574	)

Total noninterest income decreased ~~$175,000,~~$1.6 million, or ~~0.9%~~24.3%, for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 compared to the same period in ~~2021.~~2022. 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~~noninterest income. Service fee income was ~~$3.2~~$1.1 million for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 compared to ~~$2.7 million~~$976,000 for the same period in ~~2021,~~2022, an increase of ~~$505,000,~~$101,000, or ~~18.8%~~10.3%, resulting primarily from an increase in insufficient fund fee income, ~~of $505,000, or 23.8%, from $2.1 million~~commercial account analysis income and other fee income for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 compared to ~~$2.6 million for~~ the same period in 2022.

Net Realized Gain on Securities Transactions. We sell securities from time-to-time, which results in gains or losses being recognized in the income statement as noninterest income. During the three months ended March 31, 2023 we sold securities for a net gain of $93,000. No securities were sold during the three months ended March 31, 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 ~~229~~44 mortgage loans for ~~$62.2~~$12.7 million during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 compared to ~~402~~108 mortgage loans for ~~$93.0~~$28.2 million for the quarter ended ~~September 30, 2021.~~March 31, 2022, which is consistent with the industry-wide decline in overall mortgage volumes attributable to increased mortgage loan rates. Gain on sale of loans was ~~$2.1 million~~$314,000 for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, a decrease of ~~$2.3 million,~~$591,000, or ~~51.7%~~65.3%, compared to ~~$4.4 million~~$905,000 for the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. The gain reported in the current ~~year~~period was attributable entirely to the ~~sales~~sale of mortgage loans of $314,000 and there were no SBA 7(a) ~~loans of $1.7 million and $392,000, respectively,~~loan sales, while the gain during the same period in the prior year consisted of ~~$3.7 million~~$740,000 in mortgage loan sales and ~~$706,000~~$165,000 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 $1.9 million and $1.7 million for the nine months ended September 30, 2022 and 2021, respectively, an increase of $138,000, or 8.0%. The revenue increase resulted primarily from 43 new accounts that opened during the first nine months of 2022, which have generated additional income. Furthermore, revenue 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 ~~$5.4~~$1.7 million for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, compared to ~~$5.0~~$1.6 million for the same period in ~~2021,~~2022, an increase of ~~$362,000,~~$63,000, or ~~7.2%~~3.9%. The increase was primarily due to growth in

(Continued)

42.

the number of DDAs and debit card usage volume during ~~2022.~~2023. The total number of DDAs increased by ~~2,216~~1,688 accounts, from ~~52,457~~53,479 as of ~~September 30, 2021~~March 31, 2022 to ~~54,673~~55,167 as of ~~September 30, 2022.~~March 31, 2023.

Loan Processing Fee Income. Revenue earned from collection of loan processing fees was ~~$611,000~~$134,000 for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, compared to ~~$481,000~~$187,000 for the same period in ~~2021, an increase~~2022, a decrease of ~~$130,000,~~$53,000, or ~~27.0%~~28.3%. The ~~increase~~decrease in loan processing fee income is primarily attributable to ~~an increase~~a decrease 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 $394,000, or 60.8%, results from a decrease in overall warehouse lending activity in 2022. The average balance of mortgage warehouse lines decreased from $71.2 million for the nine months ended September 30, 2021, to $23.7 million for the nine months ended September 30, 2022, a $47.5 million, or 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 ~~$171,000,~~$63,000, or ~~35.7%~~48.1%, from ~~September 30, 2021~~March 31, 2022 was primarily due to a lower volume of mortgage purchases and refinances during the ~~period in 2022.~~three months ended March 31, 2023.

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 $1.5~~decreased $1.1 million, or ~~62.7%~~61.8%, for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, compared to the same period in ~~2021~~2022 resulting primarily from a net gain of $685,000 from the termination of three interest rate swaps during the first quarter of 2022 ~~and~~as well a ~~gain~~$171,000 negative swing on ~~sale~~the fair value of ~~an airplane asset for $894,000 during~~SBA servicing assets from the ~~third~~first quarter of ~~2022.~~2022 to the current period. Additionally, there was a decrease in warehouse lending fees of $84,000 due to a decrease in overall warehouse lending activity in 2023.

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 ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, noninterest expense totaled ~~$59.0~~$20.0 million, an increase of ~~$4.7 million,~~$888,000, or ~~8.7%~~4.7%, compared to ~~$54.3~~$19.1 million for the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. The following table presents, for the periods indicated, the major categories of noninterest expense:

Nine Months Ended September 30,

Increase
(Decrease)

(in thousands)

2022

2021

2022 vs. 2021

Employee compensation and benefits

$
35,113

$
31,145

$
3,968

Non-staff expenses:

Occupancy expenses

8,359

8,258

101

Legal and professional fees

2,046

1,995

51

Software and technology

3,957

3,427

530

Amortization

563

932

(369
)
Director and committee fees

637

619

18

Advertising and promotions

1,105

1,288

(183
)
ATM and debit card expense

1,975

1,802

173

Telecommunication expense

557

611

(54
)
FDIC insurance assessment fees

742

551

191

Other noninterest expense

3,956

3,674

282

Total noninterest expense

$
59,010

$
54,302

$
4,708

~~(Continued)~~

~~42.~~


	Quarter Ended March 31,				Increase (Decrease)
(in thousands)	2023		2022		2023 vs. 2022
Employee compensation and benefits	$	12,264	$	11,532	$	732
Non-staff expenses:
Occupancy expenses		2,830		2,711		119
Legal and professional fees		583		770		(187	)
Software and technology		1,396		1,209		187
Amortization		161		219		(58	)
Director and committee fees		199		205		(6	)
Advertising and promotions		267		407		(140	)
ATM and debit card expense		599		578		21
Telecommunication expense		183		186		(3	)
FDIC insurance assessment fees		301		233		68
Other noninterest expense		1,184		1,029		155
Total noninterest expense	$	19,967	$	19,079	$	888

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 ~~$35.1~~$12.3 million for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, an increase of ~~$4.0 million,~~$732,000, or ~~12.7%~~6.3%, compared to ~~$31.1~~$11.5 million for the same period in ~~2021.~~2022. Employee compensation and benefits expense increased due to ~~increased~~higher salaries of $610,000 and higher insurance expense ~~accruals due~~of $261,000, partially offset by lower bonus expense of $392,000.

Legal and Professional Fees. Legal and professional fees, which include audit, loan review and regulatory assessments other than FDIC insurance assessment fees, were $583,000 and $770,000 for the three months ended March 31, 2023 and 2022, respectively, a decrease of $187,000, or 24.3%. The decrease resulted primarily from $120,000 in

(Continued)

43.

recruitment fees to ~~increased claims experience and increased bonus accruals due to higher net earnings.~~acquire experienced officers during the three months ended March 31, 2022 that did not experienced in the current year.

Software and Technology. Software and technology expenses increased ~~$530,000,~~$187,000, or 15.5%, from ~~$3.4~~$1.2 million for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 to ~~$4.0~~$1.4 million for the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023. The increase is attributable primarily to ~~new software~~additional technology investments ~~to enhance automation~~ and ~~efficiencies, digital banking initiatives, cybersecurity monitoring and tools, and other technology capabilities.~~an increase in the cost of our core processing software.

Amortization. Amortization costs include amortization of software and core deposit intangibles. Amortization costs were ~~$563,000~~$161,000 for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, a decrease of ~~$369,000,~~$58,000, or ~~39.6%~~26.5%, compared to ~~$932,000~~$219,000 for the same period in ~~2021.~~2022. The primary reason for the decrease in amortization was due to a ~~decline in amortization expense on core deposit intangibles from $573,000 to $340,000, along with a~~ reduction in software amortization from ~~$358,000~~$106,000 to ~~$223,000~~$48,000 for the three months ended March 31, 2022 and 2023, respectively.

Advertising and Promotions. Advertising and promotion-related expenses were $267,000 and $407,000 for the three months ended March 31, 2023 and 2022, respectively, a decrease of $140,000, or 34.4%. The decrease was primarily due to fewer advertising campaigns during the ~~nine months ended 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 $2.0 million for the nine months ended September 30, 2022,current period compared to ~~$1.8 million for~~ the same period in ~~2021, an increase of $173,000, or 9.6%, as a result of increased ATM and debit card usage by our customers.~~the prior year.

FDIC Insurance Assessment Fees. FDIC insurance assessment fees were ~~$742,000~~$301,000 for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, compared to ~~$551,000~~$233,000 for the same period in ~~2021.~~2022. The increase of ~~$191,000,~~$68,000, or ~~34.7%~~29.2%, 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 ~~$282,000,~~$155,000, or ~~7.7%~~15.1%, from ~~$3.7~~$1.0 million for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 to ~~$4.0~~$1.2 million for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 due ~~partially~~ to a ~~$487,000 write-down of an SBA receivable balance during the third quarter of 2022. Additionally, there was also~~$69,000 increase in customer related check and wire transfer losses, a ~~$102,000~~$25,000 increase in contributions, ~~expense and~~ a ~~$66,000~~$19,000 increase in ~~travel~~postage and ~~lodging expense compared to the same period~~an $18,000 increase in ~~2021. These increases were partially offset by a $434,000 decrease in expense related to the termination of FHLB swaps~~training and education during the ~~third quarter of 2021.~~three months ended March 31, 2023.

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 ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ income tax expense totaled ~~$7.1~~$1.8 million and ~~$6.8~~$2.2 million, respectively. The ~~increase~~decrease in income tax expense was primarily due to a ~~increase~~decrease in net earnings before taxes of ~~$2.0~~$2.9 million. Our ~~effective tax rates for the nine months ended September 30, 2022 and 2021 were 17.91% and 18.22%, respectively.~~

~~(Continued)~~

~~43.~~

~~Discussion and Analysis of Results of Operations for the Three Months Ended 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 September 30, 2022 with the three months ended September 30, 2021. The results of operations for the three months ended 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 $10.9 million for the three months ended September 30, 2022, as compared to $9.3 million for the three months ended September 30, 2021. Basic earnings attributable to Guaranty Bancshares, Inc. per share were $0.92 for the three months ended September 30, 2022 compared to $0.77 during the same period in 2021.

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

Quarter Ended September 30,

(dollars in thousands, except per share data)

2022

2021

Net earnings attributable to Guaranty Bancshares, Inc.

$
10,903

$
9,253

Net earnings attributable to Guaranty Bancshares, Inc. per common share

-basic

0.92

0.77

-diluted

0.91

0.76

Net interest margin(1)

3.56
%

3.36
%
Net interest rate spread(2)

3.22
%

3.21
%
Return on average assets

1.30
%

1.24
%
Return on average equity

14.87
%

12.44
%
Average equity to average total assets

8.71
%

9.99
%
Cash dividend payout ratio

23.91
%

25.97
%

(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.

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 September 30, 2022 and 2021:

Quarter Ended September 30,

(dollars in thousands, except per share data)

2022

2021

Net earnings attributable to Guaranty Bancshares, Inc.

$
10,903

$
9,253

Adjustments:

Reversal of provision for credit losses

600

(700
)
Income tax provision

2,363

2,179

PPP interest income, including fees

(57
)

(1,005
)
Net core earnings attributable to Guaranty Bancshares, Inc.†

$
13,809

$
9,727

Total average assets

$
3,337,348

$
2,953,181

Adjustments:

PPP loans average balance

(1,159
)

(107,931
)
Total average assets, adjusted†

$
3,336,189

$
2,845,250

Total average equity

$
290,806

$
295,076

PERFORMANCE RATIOS

Net earnings attributable to Guaranty Bancshares, Inc. to average assets (annualized)

1.30
%

1.24
%
Net earnings attributable to Guaranty Bancshares, Inc. to average equity (annualized)

$
14.87

$
12.44

Net core earnings attributable to Guaranty Bancshares, Inc. to average assets, as adjusted (annualized)†

1.64

1.36

Net core earnings attributable to Guaranty Bancshares, Inc. to average equity (annualized)†

18.84

13.08

PER COMMON SHARE DATA

Weighted-average common shares outstanding, basic

11,907,233

12,067,769

Earnings per common share, basic

$
0.92

$
0.77

Net core earnings attributable to Guaranty Bancshares, Inc. per common share, basic†

1.16

0.81

† 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 third quarter of 2022 and 2021 was $28.3 million and $23.6 million, respectively, an increase of $4.7 million, or 20.1%. The increase in net interest income resulted from an increase in interest income of $7.2 million, or 28.7%, which was partially offset by an increase in interest expense of $2.5 million, or 151.0%, quarter over quarter. Interest income on loans increased $4.9 million, or 21.5%, during the current quarter compared to the prior year quarter. In addition, interest income from investment securities and other interest income increased $2.4 million, or 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.

~~Net interest margin, on a taxable equivalent basis, for the third quarter of 2022 and 2021 was 3.59% and 3.40%, respectively.~~

~~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 September 30, 2022 and 2021, the amount of

~~(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 September 30,

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

ASSETS

Interest-earning assets:

Total loans(1)

$
2,191,411

$
27,455

4.97
%

$
1,921,005

$
22,605

4.67
%
Securities available for sale

196,875

1,239

2.50

320,476

1,199

1.48

Securities held to maturity

707,601

3,416

1.92

116,527

1,054

3.59

Nonmarketable equity securities

21,382

172

3.19

10,040

268

10.59

Interest-bearing deposits in other banks

32,233

194

2.39

412,033

109

0.10

Total interest-earning assets

3,149,502

32,476

4.09

2,780,081

25,235

3.60

Allowance for credit losses

(28,777
)

(31,133
)

Noninterest-earning assets

216,623

204,233

Total assets

$
3,337,348

$
2,953,181

LIABILITIES AND EQUITY

Interest-bearing liabilities:

Interest-bearing deposits

$
1,650,314

$
2,455

0.59
%

$
1,599,012

$
1,348

0.33
%
Advances from FHLB and fed funds purchased

202,832

1,211

2.37

48,609

107

0.87

Line of credit

—

—

—

2,641

25

3.76

Subordinated debt

51,087

509

3.95

19,810

182

3.64

Securities sold under agreements to repurchase

6,844

4

0.23

12,171

3

0.10

Total interest-bearing liabilities

1,911,077

4,179

0.87

1,682,243

1,665

0.39

Noninterest-bearing liabilities:

Noninterest-bearing deposits

1,109,205

950,574

Accrued interest and other liabilities

26,260

25,288

Total noninterest-bearing liabilities

1,135,465

975,862

Equity

290,806

295,076

Total liabilities and equity

$
3,337,348

$
2,953,181

Net interest rate spread(2)

3.22
%

3.21
%
Net interest income

$
28,297

$
23,570

Net interest margin(3)

3.56
%

3.36
%
Net interest margin, fully taxable equivalent(4)

3.59
%

3.40
%

(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.

(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%.

~~(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 September 30, 2022:

Quarter Ended September 30, 2022

(dollars in thousands)

Average
Outstanding
Balance

Interest
Earned/
Interest
Paid

Average
Yield/ Rate

Total interest-earning assets

$
3,149,502

$
32,476

4.09
%

Total loans

2,191,411

27,455

4.97

Adjustments:

PPP loans average balance and net fees(1)

(1,159
)

(57
)

19.51

Total loans, net of PPP effects

$
2,190,252

$
27,398

4.96
%

Total interest-earning assets, net of PPP effects†

$
3,148,343

$
32,419

4.09
%

Net interest income, fully taxable equivalent ("FTE")

$
28,512

Net interest margin, FTE

3.59
%
Net interest income, net of PPP effects†

28,455

Net interest margin, FTE, net of PPP effects†

3.59
%

† 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 $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
September 30, 2022 vs. 2021

Increase (Decrease)

Due to Change in

Total Increase

(in thousands)

Volume

Rate

(Decrease)

Interest-earning assets:

Total loans

$
9,471

$
(4,621
)

$
4,850

Securities available for sale

(461
)

501

40

Securities held to maturity

5,349

(2,987
)

2,362

Nonmarketable equity securities

303

(399
)

(96
)
Interest-earning deposits in other banks

(96
)

181

85

Total increase (decrease) in interest income

$
14,566

$
(7,325
)

$
7,241

Interest-bearing liabilities:

Interest-bearing deposits

$
43

$
1,064

$
1,107

Advances from FHLB and fed funds purchased

338

766

1,104

Line of credit

(25
)

—

(25
)
Subordinated debt

287

40

327

Securities sold under agreements to repurchase

(1
)

2

1

Total increase in interest expense

642

1,872

2,514

Increase (decrease) in net interest income

$
13,924

$
(9,197
)

$
4,727

~~Provision for Credit Losses~~

During the third quarter of 2022, we recorded a $600,000 provision for credit losses compared to a reverse provision of $700,000 for the three months ended September 30, 2021. The 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 pandemic in early 2020 and adjusted our standard qualitative factors in the second quarter of 2022 to capture macro-economic conditions that we 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.~~

~~economic recession on our loan portfolio. As of September 30, 2022, our allowance for credit losses as a percentage of total loans was 1.29%.~~

~~Noninterest Income~~

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

Quarter Ended September 30,

Increase
(Decrease)

(in thousands)

2022

2021

2022 vs. 2021

Noninterest income:

Service charges

$
1,146

$
1,003

$
143

Gain on sale of loans

338

1,759

(1,421
)
Fiduciary and custodial income

576

599

(23
)
Bank-owned life insurance income

215

215

—

Merchant and debit card fees

1,738

1,620

118

Loan processing fee income

192

164

28

Warehouse lending fees

59

196

(137
)
Mortgage fee income

75

145

(70
)
Other noninterest income

1,464

748

716

Total noninterest income

$
5,803

$
6,449

$
(646
)

Total noninterest income decreased $646,000, or 10.0%, for the three months ended 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 September 30, 2022 compared to $1.0 million for the same period in 2021, an increase of $143,000, or 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 50 mortgage loans for $14.6 million for the three months ended September 30, 2022 compared to 123 mortgage loans for $29.6 million for the three months ended September 30, 2021. Gain on sale of loans was $338,000 for the three months ended September 30, 2022, a decrease of $1.4 million, or 80.8%, compared to $1.8 million for the same period in 2021. The total gain on loans sold during the quarter ended September 30, 2022 consisted of $338,000 in mortgage loans and no SBA 7(a) loans sold, compared to $1.2 million and $541,000 for mortgage and SBA loans sold, respectively, during the quarter ended September 30, 2021.

Merchant and Debit Card Fees. We earn interchange income related to activity of our customers' merchant debit card usage. Debit card interchange income was $1.7 million for the quarter ended September 30, 2022, compared to $1.6 million for the same period in 2021, an increase of $118,000, or 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 $196,000 to $59,000 for the quarters ended September 30, 2021 and 2022, respectively. The decrease in warehouse lending fees of $137,000, or 69.9%, 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 $57.5 million for the quarter ended September 30, 2021, to $15.6 million for the same quarter in 2022, a decrease of $42.0 million, or 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 $145,000 to $75,000 for the quarters ended September 30, 2021 and 2022, respectively. The decrease of $70,000, or 48.3%, from September 30, 2021 was primarily due to a lower volume of mortgage purchases and refinances in the 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 September 30, 2022, noninterest expense totaled $20.2 million, an increase of $950,000, or 4.9%, compared to $19.3 million for the three months ended September 30, 2021. The following table presents, for the periods indicated, the major categories of noninterest expense:

Quarter Ended September 30,

Increase
(Decrease)

(in thousands)

2022

2021

2022 vs. 2021

Employee compensation and benefits

$
11,851

$
10,998

$
853

Non-staff expenses:

Occupancy expenses

2,800

2,738

62

Legal and professional fees

503

644

(141
)
Software and technology

1,409

1,258

151

Amortization

166

253

(87
)
Director and committee fees

213

197

16

Advertising and promotions

378

495

(117
)
ATM and debit card expense

723

646

77

Telecommunication expense

184

197

(13
)
FDIC insurance assessment fees

272

214

58

Other noninterest expense

1,738

1,647

91

Total noninterest expense

$
20,237

$
19,287

$
950

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

Employee Compensation and Benefits. Salaries and employee benefits are the largest component of noninterest expense and include payroll expense, the cost of incentive compensation, benefit plans, health insurance and payroll taxes. Salaries and employee benefits were $11.9 million for the three months ended September 30, 2022, an increase of $853,000, or 7.8%, compared to $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 $1.4 million for the three months ended September 30, 2022, compared to $1.3 million for the same period in 2021, an increase of $151,000, or 12.0%. The increase is due to additional technology investments and an increase in the cost of our core processing software resulting from a new asset tier threshold.

Amortization. Amortization costs include amortization of software and core deposit intangibles from prior acquisitions. Amortization costs were $166,000 for the three months ended September 30, 2022, a decrease of $87,000, or 34.4%, compared to $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 $147,000 to $113,000 during the three months ended September 30, 2021 and 2022, respectively.

ATM and Debit Card Expense. ATM and debit card expenses were $723,000 for the three months ended September 30, 2022, an increase of $77,000, or 11.9%, compared to $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. FDIC insurance assessment fees were $272,000 for the three months ended September 30, 2022, compared to $214,000 for the same period in 2021. The increase of $58,000, or 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 noninterest expense increased $91,000, or 5.5%, from $1.6 million for the three months ended September 30, 2021 to $1.7 million for the three months ended September 30, 2022. Other non-interest expense during the third quarter of 2022 included a write-down of $487,000 for an SBA receivable that was 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 write-down of $487,000 in the event the SBA determines not to honor the guaranteed amount for these loan funds.

~~(Continued)~~

~~49.~~

~~Income Tax Expense~~

~~For the three months ended September 30, 2022, income tax expense totaled $2.4 million, in contrast to the $2.2 million of income tax expense for the same period of 2021. The~~ effective tax rates for the three months ended ~~September 30,~~March 31, 2023 and 2022 were 18.05% and ~~2021 were 17.82% and 19.06%~~17.23%, respectively. The effective tax rates differ from the statutory federal tax rate of 21% for the three months ended 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 ~~September 30, 2022~~March 31, 2023

Assets

Our total assets ~~increased $304.2~~remained relatively flat, increasing $4.8 million, or ~~9.9%~~0.1%, from ~~$3.09~~$3.35 billion as of December 31, ~~2021~~2022 to ~~$3.39~~$3.36 billion as of ~~September 30, 2022.~~March 31, 2023. Our asset growth was primarily due to ana $51.7 million, or 48.5%, increase in ~~gross~~fed funds sold, partially offset by a $48.1 million, or 6.9%, decrease in total investment securities. Gross loans ~~of $358.0 million. Our cash and cash equivalents~~ decreased ~~by $375.4 million as we deployed excess cash~~$363,000 during the year primarily into investment securities, which increased $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 $440.8 million, or 24.3%, during the first nine months of the year.quarter.

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 ~~September 30,~~March 31, 2023 and December 31, 2022 total loans held for investment were ~~$2.27~~$2.38 billion, an increase of $358.0 million, or 18.8%, from the December 31, 2021 balance of $1.91 billion. Excluding the outstanding balance of PPP loans, gross loans increased $408.1 million, or 22.0%, from December 31, 2021, the result of organic growth and period-end increases in all segments of real estate lending. In addition to these amounts, $2.7decreasing $363,000 between periods. Additionally, $1.3 million and ~~$4.1~~$3.2 million in loans were classified as held for sale as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

(Continued)

44.

Total loans, excluding those held for sale, as a percentage of deposits, were ~~81.2%~~90.6% and ~~71.4%~~88.7% as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. Total loans, excluding those held for sale, as a percentage of total assets, were ~~66.8%~~70.8% and ~~61.8%~~71.0% as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

The following table summarizes our loan portfolio by type of loan and dollar change and percentage change from December 31, ~~2021~~2022 to ~~September 30, 2022:~~March 31, 2023:

(in thousands)

As of
September 30, 2022

As of
December 31, 2021

Increase (Decrease)

Percent
Change

Commercial and industrial(1)

$
289,029

$
324,289

$
(35,260
)

(10.87
%)
Real estate:

Construction and development

391,564

307,797

83,767

27.22
%
Commercial real estate

821,941

622,842

199,099

31.97
%
Farmland

179,402

145,501

33,901

23.30
%
1-4 family residential

467,983

410,673

57,310

13.96
%
Multi-family residential

43,025

30,971

12,054

38.92
%
Consumer and overdrafts

59,204

51,328

7,876

15.34
%
Agricultural

13,917

14,639

(722
)

(4.93
%)
Total loans held for investment

$
2,266,065

$
1,908,040

$
358,025

18.76
%

Total loans held for sale

$
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.

~~(Continued)~~

~~50.~~


(in thousands)	As of March 31, 2023		As of December 31, 2022		Increase (Decrease)			Percent Change
Commercial and industrial	$	295,936	$	314,067	$	(18,131	)		(5.77	%)
Real estate:
Construction and development		372,203		377,135		(4,932	)		(1.31	%)
Commercial real estate		900,190		887,587		12,603			1.42	%
Farmland		190,802		185,817		4,985			2.68	%
1-4 family residential		499,944		493,061		6,883			1.40	%
Multi-family residential		44,760		45,147		(387	)		(0.86	%)
Consumer and overdrafts		60,433		61,676		(1,243	)		(2.02	%)
Agricultural		13,545		13,686		(141	)		(1.03	%)
Total loans held for investment	$	2,377,813	$	2,378,176	$	(363	)		(0.02	%)

Total loans held for sale	$	1,260	$	3,156	$	(1,896	)		(60.08	%)

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 ~~September 30, 2022~~March 31, 2023 are summarized in the following table:


	As of September 30, 2022										As of March 31, 2023
(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	$	104,116	$	115,059	$	60,280	$	9,574	$	289,029	$	90,384	$	138,414	$	64,943	$	2,195	$	295,936
Real estate:
Construction and development		177,351		94,296		79,203		40,714		391,564		197,084		56,067		72,757		46,295		372,203
Commercial real estate		48,388		220,842		265,524		287,187		821,941		42,243		257,653		295,206		305,088		900,190
Farmland		12,421		79,325		45,914		41,742		179,402		16,823		87,512		44,662		41,805		190,802
1-4 family residential		30,272		39,423		176,458		221,830		467,983		26,804		42,047		182,118		248,975		499,944
Multi-family residential		91		19,999		17,003		5,932		43,025		1,447		21,007		16,472		5,834		44,760
Consumer		13,465		41,186		2,462		2,091		59,204		12,826		43,379		2,181		2,047		60,433
Agricultural		8,991		4,285		641		—		13,917		8,528		4,580		437		—		13,545
Total loans	$	395,095	$	614,415	$	647,485	$	609,070	$	2,266,065	$	396,139	$	650,659	$	678,776	$	652,239	$	2,377,813
Amounts with fixed rates	$	247,579	$	481,406	$	42,031	$	39,187	$	810,203	$	238,113	$	507,638	$	44,163	$	42,885	$	832,799
Amounts with adjustable rates	$	147,516	$	133,009	$	605,454	$	569,883	$	1,455,862	$	158,026	$	143,021	$	634,613	$	609,354	$	1,545,014

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.

(Continued)

45.

Nonperforming assets as a percentage of total loans were ~~0.41%~~0.56% at ~~September 30, 2022,~~March 31, 2023, compared to ~~0.15%~~0.46% at December 31, ~~2021.~~2022. The Bank's ~~non-performing~~nonperforming assets consist primarily of ~~non-accrual~~nonaccrual loans. Four ~~loans were added to nonaccrual status in the 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~~were added to nonaccrual status during the second quarter of 2022 and carried a combined book ~~balances~~balance of $6.7 million as of 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.March 31, 2023. Management continues to work toward a satisfactory resolution for these four loans, ~~however, in~~which are collateralized by two hotels. In the event of foreclosure, a significant loss is not expected due to their estimated current collateral values. There are an additional three nonaccrual loans that are secured by single family real estate and have combined total book balances of $2.9 million as of March 31, 2023. Management is working toward a satisfactory resolution on these loans and expects losses, if any, to be minimal due to low loan-to-value ratios and/or guarantor support.

~~(Continued)~~

~~51.~~

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


(dollars in thousands)	September 30, 2022			December 31, 2021				March 31, 2023			December 31, 2022
Nonaccrual loans~~(1)~~	$	9,330		$	2,831			$	13,405		$	10,848
Accruing loans 90 or more days past due		—			—				—			—
Total nonperforming loans		9,330			2,831				13,405			10,848
Other real estate owned:
Residential real estate		5			—				38			38
Total other real estate owned		5			—				38			38
Repossessed assets owned		—			14				—			—
Total other assets owned		5			14				38			38
Total nonperforming assets	$	9,335		$	2,845			$	13,443		$	10,886
TDR loans - nonaccrual(1)	$	6,753		$	103
TDR loans - accruing		1,895			9,466
Ratio of nonaccrual loans to total loans(2)		0.41	%		0.15	%
Ratio of nonperforming loans to total loans(2)		0.41	%		0.15	%
Ratio of nonperforming assets to total loans(2)		0.41	%		0.15	%
Ratio of nonaccrual loans to total loans(1)									0.56	%		0.46	%
Ratio of nonperforming loans to total loans(1)									0.56	%		0.46	%
Ratio of nonperforming assets to total loans(1)									0.57	%		0.46	%
Ratio of nonperforming assets to total assets		0.28	%		0.09	%			0.40	%		0.32	%

(1) Restructured loans on nonaccrual are included in nonaccrual loans, which are a component of nonperforming loans.
(2) Excludes loans held for sale of $2.7 million and $4.1 million as of September 30, 2022 and December 31, 2021, respectively.
(1) Excludes loans held for sale of $1.3 million and $3.2 million as of March 31, 2023 and December 31, 2022, respectively.							(1) Excludes loans held for sale of $1.3 million and $3.2 million as of March 31, 2023 and December 31, 2022, respectively.

The following table presents nonaccrual loans by category as of:


(in thousands)	September 30, 2022		December 31, 2021		March 31, 2023		December 31, 2022
Commercial and industrial	$	71	$	148	$	608	$	115
Real estate:
Construction and development						2,496		1,435
Commercial real estate		7,354		642		6,956		7,271
Farmland		117		298		109		109
1-4 family residential		1,534		1,535		3,040		1,691
Consumer and overdrafts		123		160		154		170
Agricultural		131		48		42		57
Total	$	9,330	$	2,831	$	13,405	$	10,848

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

(Continued)

46.

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.~~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:


	September 30, 2022														March 31, 2023
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Loss		Nonaccrual		Total		Pass		Special Mention		Substandard		Doubtful		Loss		Nonaccrual		Total
Commercial and industrial	$	286,333	$	1,465	$	1,160	$	—	$	—	$	71	$	289,029	$	293,534	$	927	$	867	$	—	$	—	$	608	$	295,936
Real estate:
Construction and development		389,703		1,861		—		—		—		—		391,564		368,814		893		—		—		—		2,496		372,203
Commercial real estate		800,219		6,886		7,482		—		—		7,354		821,941		879,922		7,252		6,060		—		—		6,956		900,190
Farmland		179,188		—		97		—		—		117		179,402		190,603		—		90		—		—		109		190,802
1-4 family residential		466,295		154		—		—		—		1,534		467,983		496,689		215		—		—		—		3,040		499,944
Multi-family residential		43,025		—		—		—		—		—		43,025		44,760		—		—		—		—		—		44,760
Consumer and overdrafts		59,055		26		—		—		—		123		59,204		60,232		47		—		—		—		154		60,433
Agricultural		13,734		4		48		—		—		131		13,917		13,478		—		25		—		—		42		13,545
Total	$	2,237,552	$	10,396	$	8,787	$	—	$	—	$	9,330	$	2,266,065	$	2,348,032	$	9,334	$	7,042	$	—	$	—	$	13,405	$	2,377,813


	December 31, 2021														December 31, 2022
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Loss		Nonaccrual		Total		Pass		Special Mention		Substandard		Doubtful		Loss		Nonaccrual		Total
Commercial and industrial	$	323,479	$	102	$	560	$	—	$	—	$	148	$	324,289	$	311,685	$	1,369	$	898	$	—	$	—	$	115	$	314,067
Real estate:
Construction and development		306,242		944		611		—		—		—		307,797		374,795		905		—		—		—		1,435		377,135
Commercial real estate		573,535		6,103		42,562		—		—		642		622,842		867,426		7,321		5,569		—		—		7,271		887,587
Farmland		145,105		26		72		—		—		298		145,501		185,615		—		93		—		—		109		185,817
1-4 family residential		409,120		18		—		—		—		1,535		410,673		491,171		199		—		—		—		1,691		493,061
Multi-family residential		30,971		—		—		—		—		—		30,971		45,147		—		—		—		—		—		45,147
Consumer and overdrafts		51,087		81		—		—		—		160		51,328		61,456		50		—		—		—		170		61,676
Agricultural		14,506		13		72		—		—		48		14,639		13,594		3		32		—		—		57		13,686
Total	$	1,854,045	$	7,287	$	43,877	$	—	$	—	$	2,831	$	1,908,040	$	2,350,889	$	9,847	$	6,592	$	—	$	—	$	10,848	$	2,378,176

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 ~~September 30, 2022,~~March 31, 2023, 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 ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023.

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

(Continued)

47.

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 ~~September 30, 2022,~~March 31, 2023, 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 and for SBA loans originated by ~~us and SBA PPP loans.~~us. 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 ~~September 30, 2022,~~March 31, 2023, the allowance for credit losses totaled ~~$29.2~~$32.0 million, or ~~1.29%~~1.34%, of total loans, excluding those held for sale. As of December 31, ~~2021,~~2022, the allowance for credit losses totaled ~~$30.4~~$32.0 million, or ~~1.59%~~1.34%, of total loans, excluding those held for ~~sale,~~sale. There was no provision during the quarter and ~~totaled 1.64%, excluding PPP loans and loans held for sale. The decrease in~~ the ~~ACL of $1.2 million,~~relative consistency from the prior quarter, which decreased $21,000, or ~~3.9%~~0.1%, is ~~partially the result of fully unwinding the COVID-specific qualitative factor during the first quarter of 2022, which was offset by growth in the loan portfolio and by adjustments~~primarily due 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 factorsa $2.8 million provision made in the fourth quarter of 2022 to incorporate economic recession forecasts into our CECL model. The factors that were adjusted in the fourth quarter of 2022 are still relevant and ~~possibly into 2023 as~~the economic ~~forecasts~~projections remained consistent through the first quarter of 2023. Furthermore, there was minimal growth in the loan portfolio, risk ratings have remained consistent and ~~impacts of recession become more clear.~~no other qualitative factors necessitated significant changes during the three months ended March 31, 2023.

(Continued)

~~54.~~48.

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 Nine Months Ended September 30,						As of and For The Year Ended December 31,				As of and For The Three Months Ended March 31,						As of and For The Year Ended December 31,
(dollars in thousands)	2022			2021			2021				2023			2022			2022
Average loans outstanding(1)	$	2,066,529		$	1,906,989		$	1,911,540			$	2,388,045		$	1,937,000		$	2,126,810
Gross loans outstanding at end of period(2)		2,266,065			1,970,881			1,908,040				2,377,813			2,014,061			2,378,176
Allowance for credit losses at beginning of the period		30,433			33,619			33,619				31,974			30,433			30,433
Reversal of provision for credit losses		(650	)		(1,700	)		(1,700	)			—			(1,250	)		2,150
Charge offs:
Commercial and industrial		192			300			411				3			119			192
Real estate:
Commercial real estate		—			816			816
Consumer		313			113			151				7			17			322
Agriculture												3			—			—
Overdrafts		241			173			263				81			67			335
Total charge-offs		746			1,402			1,641				94			203			849
Recoveries:
Commercial and industrial		62			15			21				8			39			72
Real estate:
Construction and development		—			1			1
Commercial real estate		1			11			30				—			1			1
1-4 family residential		30			—			—				—			30			30
Consumer		40			32			35				45			16			55
Agriculture		—			—			8				2			—			—
Overdrafts		65			45			60				18			30			82
Total recoveries		198			104			155				73			116			240
Net charge-offs		548			1,298			1,486				21			87			609
Allowance for credit losses at end of period	$	29,235		$	30,621		$	30,433			$	31,953		$	29,096		$	31,974
Ratio of allowance to end of period loans(2)		1.29	%		1.55	%		1.59	%			1.34	%		1.44	%		1.34	%
Ratio of net charge-offs to average loans(1)		0.03	%		0.07	%		0.08	%			0.00	%		0.00	%		0.03	%

Total nonaccrual loans	$	9,330		$	3,135		$	2,831			$	13,405		$	2,682		$	10,848
Ratio of allowance to nonaccrual loans		313.3	%		976.7	%		1075.0	%			238.4	%		1084.9	%		294.7	%

(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.
(1) Includes average outstanding balances of loans held for sale of $1.7 million, $3.2 million and $2.4 million for the three months ended March 31, 2023 and 2022, and for the year ended December 31, 2022, respectively.										(1) Includes average outstanding balances of loans held for sale of $1.7 million, $3.2 million and $2.4 million for the three months ended March 31, 2023 and 2022, and for the year ended December 31, 2022, respectively.
(2) Excludes loans held for sale of $1.3 million, $1.2 million and $3.2 million for the three months ended March 31, 2023 and 2022, and for the year ended December 31, 2022, respectively.										(2) Excludes loans held for sale of $1.3 million, $1.2 million and $3.2 million for the three months ended March 31, 2023 and 2022, and for the year ended December 31, 2022, respectively.

The ratio of allowance for credit losses to nonperforming loans decreased from ~~1075.0%~~294.7% at December 31, ~~2021~~2022 to ~~313.3%~~238.4% at ~~September 30, 2022.~~March 31, 2023. Nonperforming loans increased to ~~$9.3~~$13.4 million at ~~September 30, 2022,~~March 31, 2023, compared to ~~$2.8~~$10.8 million at December 31, ~~2021.~~2022.

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


	Nine Months Ended September 30,						Quarter Ended March 31,
	2022			2021			2023			2022
Commercial and industrial		0.04	%		0.07	%		—			0.03	%
Real estate:
Commercial real estate		—			0.13	%
1-4 family residential		(0.01	%)		—			—			(0.01	%)
Consumer		0.50	%		0.16	%		(0.06	%)		—
Agricultural								0.01	%		—
Overdrafts		40.18	%		31.68	%		14.89	%		8.26	%
Net charge-offs to total loans		0.03	%		0.07	%		0.00	%		0.00	%

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.~~49.

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 September 30, 2022					As of December 31, 2021					As of March 31, 2023					As of December 31, 2022
(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	$	3,817		13.06	%	$	3,600		11.83	%	$	4,148		12.98	%	$	4,382		13.70	%
Real estate:
Construction and development		4,610		15.77	%		4,221		13.87	%		4,864		15.22	%		4,889		15.29	%
Commercial real estate		11,645		39.83	%		13,765		45.23	%		12,690		39.71	%		12,658		39.59	%
Farmland		1,839		6.29	%		1,698		5.58	%		2,086		6.53	%		2,008		6.28	%
1-4 family residential		6,006		20.54	%		5,818		19.12	%		6,641		20.78	%		6,617		20.69	%
Multi-family residential		446		1.53	%		396		1.30	%		479		1.50	%		490		1.53	%
Total real estate		24,546		83.96	%		25,898		85.10	%		26,760		83.74	%		26,662		83.38	%
Consumer and overdrafts		722		2.47	%		766		2.51	%		901		2.82	%		781		2.44	%
Agricultural		150		0.51	%		169		0.56	%		144		0.46	%		149		0.48	%
Total allowance for credit losses	$	29,235		100.00	%	$	30,433		100.00	%	$	31,953		100.00	%	$	31,974		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 ~~September 30, 2022,~~March 31, 2023, the carrying amount of our investment securities totaled ~~$831.3~~$649.8 million, ~~an increase~~a decrease of ~~$304.9~~$48.1 million, or ~~57.9%~~6.9%, compared to ~~$526.5~~$697.9 million as of December 31, ~~2021.~~2022. Investment securities represented ~~24.5%~~19.4% and ~~17.1%~~20.8% of total assets as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

As of March 31, 2023, securities available for sale totaled $173.7 million and securities held to maturity, which includes certain securities transferred from our available for sale portfolio during the prior year, totaled $476.1 million. As of December 31, 2022, securities available for sale totaled $188.9 million and securities held to maturity totaled $509.0 million.

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 ~~September 30, 2022,~~March 31, 2023, 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 ~~September 30, 2022.~~March 31, 2023.

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 ~~$5.5~~$6.2 million at ~~September 30, 2022,~~March 31, 2023, compared to a net unamortized, unrealized ~~gain~~loss of ~~$8.9~~$5.9 million at December 31, ~~2021.~~2022. 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 September 30, 2022								As of March 31, 2023
(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	$	9,103	$	—	$	1,277	$	7,826	$	9,178	$	—	$	1,166	$	8,012
Treasury securities		253,733		—		3,409		250,324		113,939		—		1,915		112,024
Corporate bonds		35,003		—		1,893		33,110		29,943		—		2,302		27,641
Municipal securities		201,588		119		10,265		191,442		185,172		886		7,575		178,483
Mortgage-backed securities		285,808		5		32,649		253,164		269,325		—		30,335		238,990
Collateralized mortgage obligations		66,641		6		8,725		57,922		61,669		3		8,774		52,898
Total	$	851,876	$	130	$	58,218	$	793,788	$	669,226	$	889	$	52,067	$	618,048

(Continued)

~~56.~~50.


	As of December 31, 2021								As of December 31, 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	$	10,013	$	—	$	42	$	9,971	$	9,141	$	—	$	1,259	$	7,882
Treasury securities										133,735		—		2,921		130,814
Corporate bonds		35,080		940		85		35,935		29,964		—		2,177		27,787
Municipal securities		181,310		8,364		118		189,556		202,004		984		8,293		194,695
Mortgage-backed securities		224,563		1,477		1,816		224,224		278,589		1		30,264		248,326
Collateralized mortgage obligations		74,925		971		904		74,992		63,740		3		9,252		54,491
Total	$	525,891	$	11,752	$	2,965	$	534,678	$	717,173	$	988	$	54,166	$	663,995

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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, 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~~expected 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 September 30, 2022															As of March 31, 2023
	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	$	—	—	$	—	—	$	9,103	1.35%	$	—	—	$	9,103	1.35%	$	—	—	$	—	—	$	9,178	1.35%	$	—	—	$	9,178	1.35%
Treasury securities		184,919	0.95%		68,814	2.51%		—	—		—	—		253,733	1.37%		74,828	1.79%		39,111	2.91%		—	—		—	—		113,939	2.18%
Corporate bonds		4,967	2.90%		9,743	3.41%		18,400	4.00%		—	—		33,110	3.67%		—	—		9,691	3.41%		17,950	4.00%		—	—		27,641	3.80%
Municipal securities		23,453	3.64%		38,823	3.39%		64,383	3.11%		74,859	3.23%		201,518	3.27%		16,633	3.38%		43,041	2.94%		61,425	3.09%		64,289	3.31%		185,388	3.15%
Mortgage-backed securities		3,097	2.46%		84,671	1.76%		176,113	2.51%		5,026	1.96%		268,907	2.25%		2,689	1.85%		65,982	1.83%		168,258	2.45%		16,787	2.91%		253,716	2.33%
Collateralized mortgage obligations		542	3.02%		43,621	2.22%		20,796	1.63%		—	—		64,959	2.01%		304	3.29%		10,628	2.96%		37,416	2.00%		11,639	1.24%		59,987	1.98%
Total	$	216,978	1.31%	$	245,672	2.35%	$	288,795	2.62%	$	79,885	3.07%	$	831,330	2.25%	$	94,454	2.08%	$	168,453	2.50%	$	294,227	2.59%	$	92,715	2.89%	$	649,849	2.54%


	As of December 31, 2021															As of December 31, 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	$	—	—	$	—	—	$	9,971	1.35%	$	—	—	$	9,971	1.35%	$	—	—	$	—	—	$	9,141	1.35%	$	—	—	$	9,141	1.35%
Treasury securities																	64,798	1.46%		68,937	2.51%		—	—		—	—		133,735	2.00%
Corporate bonds		—	—		15,223	3.21%		20,712	4.01%		—	—		35,935	3.68%		—	—		9,690	3.41%		18,097	4.00%		—	—		27,787	3.80%
Municipal securities		13,471	3.43%		57,858	3.31%		44,342	2.92%		65,639	3.19%		181,310	3.18%		19,151	3.48%		46,087	3.18%		56,844	3.21%		80,240	3.44%		202,322	3.32%
Mortgage-backed securities		70	3.33%		129,327	1.38%		78,468	1.73%		16,396	2.08%		224,261	1.55%		3,042	2.43%		80,292	1.91%		170,487	2.51%		9,213	1.93%		263,034	2.31%
Collateralized mortgage obligations		1,491	3.22%		65,897	1.99%		7,604	1.18%		—	—		74,992	1.93%		626	3.82%		25,772	2.79%		32,107	1.47%		3,411	1.09%		61,916	1.98%
Total	$	15,032	3.41%	$	268,305	2.04%	$	161,097	2.29%	$	82,035	2.95%	$	526,469	2.29%	$	87,617	1.95%	$	230,778	2.49%	$	286,676	2.57%	$	92,864	3.15%	$	697,935	2.54%

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

(Continued)

51.

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 ~~4.36~~5.01 years with an estimated effective duration of ~~3.46~~4.03 years as of ~~September 30, 2022.~~March 31, 2023.

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, 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 ~~2.25%~~2.54% as of ~~September 30, 2022, down from 2.29% as~~March 31, 2023 and December 31, 2022. Average yield remained flat primarily due to an 18 basis point increase in yield on treasury securities and a 16 basis point decrease in yield on municipal securities. As of March 31, 2023, the fair value of available for sale and amortized cost of held to maturity mortgage-backed securities and municipal securities comprised 39.0% and 28.5% of the portfolio, respectively. As of December 31, ~~2021. The decline in average yield resulted primarily from the purchase during the first quarter of~~ 2022, ~~of short term treasury~~mortgage-backed securities ~~that had a book value of $253.7 million as of September 30, 2022,~~ and earn an average yield of 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 September 30, 2022, treasurymunicipal securities comprised ~~30.5%~~37.7% and 29.0% of the ~~portfolio. No treasury securities were held as of December 31, 2021.~~portfolio, respectively.

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~~Average total deposits asfor the three months ended March 31, 2023 were $2.63 billion, a decrease of ~~September 30, 2022 were $2.79 billion, an increase of $119.7~~$125.4 million, or ~~4.5%~~2.7%, compared to ~~$2.67~~$2.75 billion ~~as of~~for the year ended December 31, ~~2021.~~2022. The ~~deposit~~average rate paid on total interest-bearing deposits was 1.91% and 0.58% for the three months ended March 31, 2023 and year ended December 31, 2022, respectively. The increase in average rates between periods was driven primarily by the cumulative 50 basis point increase in market rates made by the Federal Reserve during the first quarter of 2023, the 125 cumulative basis point during the fourth quarter of 2022 and the effect of increasing rates throughout 2022.

The following table presents the average balance ~~increase was due to organic growth.~~of, and rate paid on, deposits for the periods indicated:


	Three Months Ended March 31,
	2023					2022
(dollars in thousands)	Average Balance		Average Rate Paid			Average Balance		Average Rate Paid
NOW and interest-bearing demand accounts	$	312,989		0.95	%	$	414,839		0.24	%
Savings accounts		138,690		0.75	%		134,974		0.10	%
Money market accounts		762,676		2.31	%		835,554		0.25	%
Certificates and other time deposits		410,255		2.29	%		324,790		0.58	%
Total interest-bearing deposits		1,624,610		1.91	%		1,710,157		0.29	%
Noninterest-bearing demand accounts		1,002,793		0	%		1,027,429		0	%
Total deposits	$	2,627,403		1.18	%	$	2,737,586		0.18	%

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


(dollars in thousands)	For the Nine Months Ended September 30, 2022		For the Year Ended December 31, 2021		Increase (Decrease) ($)			Increase (Decrease) (%)			For the Three Months Ended March 31, 2023		For the Year Ended December 31, 2022		Increase (Decrease) ($)			Increase (Decrease) (%)
NOW and interest-bearing demand accounts	$	383,149	$	355,171	$	27,978			7.88	%	$	312,989	$	364,941	$	(51,952	)		(14.24	%)
Savings accounts		140,461		119,818		20,643			17.23	%		138,690		141,484		(2,794	)		(1.97	%)
Money market accounts		832,662		773,553		59,109			7.64	%		762,676		831,833		(69,157	)		(8.31	%)
Certificates and other time deposits		328,453		352,833		(24,380	)		(6.91	%)		410,255		332,029		78,226			23.56	%
Total interest-bearing deposits		1,684,725		1,601,375		83,350			5.20	%		1,624,610		1,670,287		(45,677	)		(2.73	%)
Noninterest-bearing demand accounts		1,075,941		916,562		159,379			17.39	%		1,002,793		1,082,513		(79,720	)		(7.36	%)
Total deposits	$	2,760,666	$	2,517,937	$	242,729			9.64	%	$	2,627,403	$	2,752,800	$	(125,397	)		(4.56	%)

The ratio of average noninterest-bearing deposits to average total deposits for the three months ended March 31, 2023 and year ended December 31, 2022 was 38.2% and 39.3%, respectively.

Total deposits as of March 31, 2023 were $2.62 billion, a decrease of $57.8 million, or 2.2%, compared to $2.68 billion as of December 31, 2022.

Noninterest-bearing deposits as of March 31, 2023 were $992.5 million compared to $1.05 billion as of December 31, 2022, a decrease of $59.6 million, or 5.7%.

(Continued)

52.

Total interest-bearing deposits as of March 31, 2023 and December 31, 2022 were $1.63 billion, which represented a slight increase of $1.8 million, or 0.1%.

The aggregate amount of certificates and other time deposits in denominations greater than $250,000 as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 was ~~$123.8~~$186.9 million and ~~$228.1~~$130.0 million, respectively.

The ~~scheduled maturities~~amount of uninsured certificates ~~and other time deposits~~of deposit will differ from the total amount of certificates of deposit greater than $250,000 ~~were~~due to various factors, including joint account ownership The following table sets forth the amount of uninsured certificates of deposit greater than $250,000 by time remaining until maturity as ~~follows:~~of:


(dollars in thousands)	As of September 30, 2022		March 31, 2023
Under 3 months	$	26,860	$	16,598
3 to 6 months		17,459		23,290
6 to 12 months		53,211		81,027
Over 12 months		8,650		33,425
Total	$	106,180	$	154,340

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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, total borrowing capacity of ~~$684.4~~$757.6 million and ~~$638.7~~$755.0 million, respectively, was available under this arrangement. Our outstanding FHLB advances mature within ~~one year.~~two years. As of ~~September 30, 2022,~~March 31, 2023, approximately ~~$1.77~~$1.99 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 ~~September 30, 2022:~~March 31, 2023:


(dollars in thousands)	Balance		Weighted Average Interest Rate			Balance		Weighted Average Interest Rate
Less than 90 days	$	185,000		2.68	%	$	180,000		4.97	%
90 days to less than one year		40,000		3.91	%		150,000		5.07	%
One to three years							10,000		4.38	%
Total	$	225,000		1.70	%	$	340,000		4.74	%

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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021, $216.7~~2022, $243.9 million and ~~$182.9~~$227.6 million, respectively, were available under this arrangement. As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, approximately ~~$275.6~~$308.4 million and ~~$236.4~~$289.5 million, respectively, in consumer and commercial and industrial loans were pledged as collateral. As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, 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

(Continued)

53.

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~~$531,000 in related unamortized debt 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~~Various portions of these debentures have matured ~~in November of 2020~~since issuance and ~~$9.5~~$7.5 million remains outstanding as of ~~September~~

~~(Continued)~~

~~59.~~

~~30, 2022.~~March 31, 2023. The debentures are redeemable by the Company at its option, in whole in or part, at any time on or before the due date of any debenture. The redemption price is equal to 100% of the face amount of the debenture redeemed, plus all accrued but unpaid interest.

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.~~2023. The line of credit bears interest at the prime rate ~~(6.25%~~(8.00% as of ~~September 30, 2022)~~March 31, 2023) subject to a floor of 3.50%, with quarterly interest payments, and matures in March ~~2023.~~2024. As of ~~September 30, 2022,~~March 31, 2023, 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 ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and the year ended December 31, ~~2021,~~2022, 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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, we maintained two federal funds lines of credit with commercial banks that provide for the availability to borrow up to an aggregate ~~$60.0~~$55.0 million in federal funds. There were no funds under these lines of credit outstanding as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022. 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.

Contingent liquidity sources and availability as of March 31, 2023 are provided below. Although we do not plan to access the Federal Reserve's Bank Term Funding Program (BTFP), we have $282.3 million of borrowing capacity based

(Continued)

54.

on the value of unpledged, par value securities available as collateral for this line. The table below shows our total lines of credit, current borrowings as of March 31, 2023 and total amounts available for future borrowings, if necessary.


	March 31, 2023				Total Available for Future Liquidity
(dollars in thousands)	Line of Credit		Borrowings
FHLB advances	$	1,097,558	$	340,000	$	757,558
Federal Reserve discount window		243,900		—		243,900
Federal funds lines of credit		55,000		—		55,000
Correspondent bank line of credit		25,000		—		25,000
Federal Reserve Bank Term Funding Program		282,342		—		282,342
Total liquidity lines					$	1,363,800

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 ~~$3.23~~$3.33 billion for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~$2.92~~$3.26 billion for the year ended December 31, ~~2021.~~2022.


	Nine Months Ended September 30, 2022			Year Ended December 31, 2021			Three Months Ended March 31, 2023			Year Ended December 31, 2022
Sources of Funds:
Deposits:
Noninterest-bearing		33.29	%		31.36	%		30.16	%		33.20	%
Interest-bearing		52.13	%		54.79	%		48.86	%		51.23	%
Advances from FHLB		2.98	%		1.68	%		9.33	%		4.07	%
Line of credit		0.00	%		0.21	%		0.00	%		0.00	%
Subordinated debt		1.42	%		0.68	%		1.48	%		1.44	%
Securities sold under agreements to repurchase		0.28	%		0.51	%		0.33	%		0.26	%
Accrued interest and other liabilities		0.79	%		0.85	%		0.80	%		0.79	%
Equity		9.11	%		9.92	%		9.04	%		9.01	%
Total		100.00	%		100.00	%		100.00	%		100.00	%

Uses of Funds:
Loans		63.04	%		64.31	%		70.86	%		64.33	%
Securities available for sale		9.79	%		12.19	%		5.55	%		8.83	%
Securities held to maturity		15.44	%		2.54	%		15.12	%		15.89	%
Nonmarketable equity securities		0.52	%		0.34	%		0.85	%		0.58	%
Federal funds sold		3.97	%		12.75	%		0.87	%		3.26	%
Interest-bearing deposits in other banks		0.54	%		0.91	%		0.18	%		0.47	%
Other noninterest-earning assets		6.70	%		6.96	%		6.57	%		6.64	%
Total		100.00	%		100.00	%		100.00	%		100.00	%

Average noninterest-bearing deposits to average deposits		38.97	%		36.40	%		38.17	%		39.32	%
Average loans to average deposits		74.86	%		75.92	%		90.89	%		77.26	%

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 ~~$159.5~~$451.0 million, or ~~8.4%~~23.3%, for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 compared to the same period in ~~2021,~~2022, while our average deposits ~~increased $274.2~~decreased $110.2 million, or ~~11.0%~~4.0%, for the same time period. We predominantly invest excess

~~(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 ~~September 30, 2022,~~March 31, 2023, we had ~~$529.4~~$464.3 million in outstanding commitments to extend credit and ~~$8.1~~$8.3 million in commitments associated with outstanding standby and commercial letters of credit. As of December 31, ~~2021,~~2022, we had ~~$405.3~~$474.7 million in outstanding commitments to extend credit and ~~$8.4~~$8.3 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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, we had no exposure to future cash requirements associated with known uncertainties or capital expenditures of a material nature. As of ~~September 30, 2022,~~March 31, 2023, we had cash and cash equivalents of ~~$124.2~~$158.1 million, compared to ~~$499.6~~$106.5 million as of December 31, ~~2021.~~2022. The ~~decrease~~increase was primarily due to ~~a decrease~~an increase in federal funds sold of ~~$360.1~~$48.1 million, which ~~was primarily~~is used ~~to purchase additional investment securities and fund loan growth during the period.~~for liquidity purposes.

(Continued)

55.

Capital Resources

Total equity ~~decreased~~increased to ~~$288.7~~$300.3 million as of ~~September 30, 2022,~~March 31, 2023, compared to ~~$302.2~~$295.6 million as of December 31, ~~2021,~~2022, a ~~decrease~~increase of ~~$13.6~~$4.7 million, or ~~4.5%~~1.6%. The ~~decrease~~increase from December 31, ~~2021~~2022 was due to repurchase of treasury stock for $8.8 million, payment of dividends of $7.9 million and a decrease in other comprehensive income during the year of $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 ~~$32.4~~$8.3 million, offset by an increase in accumulated other comprehensive loss of $450,000 due to fluctuations in the fair value of available for sale securities during the ~~nine months ended September 30, 2022.~~period, by the payment of dividends of $2.7 million and repurchase of Company stock of $744,000 during the first quarter of 2023.

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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, 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:

September 30, 2022

December 31, 2021

(dollars in thousands)

Amount

Ratio

Amount

Ratio

Guaranty Bancshares, Inc. (consolidated)

Total capital (to risk weighted assets)

$
350,305

14.60
%

$
297,370

14.51
%
Tier 1 capital (to risk weighted assets)

286,668

11.95
%

271,696

13.25
%
Tier 1 capital (to average assets)

286,668

8.63
%

271,696

9.18
%
Common equity tier 1 risk-based capital

279,451

11.65
%

261,386

12.75
%

Guaranty Bank & Trust, N.A.

Total capital (to risk weighted assets)

$
350,271

14.60
%

$
311,335

15.19
%
Tier 1 capital (to risk weighted assets)

321,036

13.38
%

285,661

13.94
%
Tier 1 capital (to average assets)

321,036

9.68
%

285,661

9.66
%
Common equity tier 1 risk-based capital

321,036

13.38
%

285,661

13.94
%

~~(Continued)~~

~~61.~~


	March 31, 2023					December 31, 2022
(dollars in thousands)	Amount		Ratio			Amount		Ratio
Guaranty Bancshares, Inc. (consolidated)

Total capital (to risk-weighted assets)	$	363,916		14.57	%	$	358,702		14.37	%
Tier 1 capital (to risk-weighted assets)		298,241		11.94	%		292,966		11.74	%
Tier 1 capital (to average assets)		298,241		9.00	%		292,966		8.77	%
Common equity tier 1 capital (to risk-weighted assets)		291,024		11.65	%		285,749		11.45	%

Guaranty Bank & Trust, N.A.

Total capital (to risk weighted assets)	$	370,244		14.84	%	$	361,125		14.48	%
Tier 1 capital (to risk weighted assets)		339,038		13.58	%		329,933		13.23	%
Tier 1 capital (to average assets)		339,038		10.24	%		329,933		9.89	%
Common equity tier 1 capital (to risk-weighted assets)		339,038		13.58	%		329,933		13.23	%

Contractual Obligations

The following table summarizes contractual obligations and other commitments to make future payments as of ~~September 30, 2022 (other than non-time deposit obligations),~~March 31, 2023, which consist of future cash payments associated with our contractual obligations.


	As of September 30, 2022										As of March 31, 2023
(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	$	292,275	$	37,197	$	10,731	$	—	$	340,203	$	408,702	$	57,465	$	7,134	$	—	$	473,301
Advances from FHLB		225,000		—		—		—		225,000		330,000		10,000		—		—		340,000
Subordinated debt		3,500		6,000		—		41,619		51,119		3,500		4,000		—		35,000		42,500
Operating leases		1,940		3,872		3,221		4,942		13,975		1,998		3,845		3,227		4,522		13,592
Total	$	522,715	$	47,069	$	13,952	$	46,561	$	630,297	$	744,200	$	75,310	$	10,361	$	39,522	$	869,393

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 ~~September 30, 2022~~March 31, 2023 are summarized below. Since commitments associated with letters of credit

(Continued)

56.

and commitments to extend credit may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements.


	As of September 30, 2022										As of March 31, 2023
(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	$	5,016	$	1,835	$	371	$	914	$	8,136	$	6,344	$	1,000	$	34	$	894	$	8,272
Commitments to extend credit		240,452		112,189		18,585		158,147		529,373		252,004		96,621		17,889		97,793		464,307
Total	$	245,468	$	114,024	$	18,956	$	159,061	$	537,509	$	258,348	$	97,621	$	17,923	$	98,687	$	472,579

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 ~~September 30, 2022,~~March 31, 2023, and determined the likelihood to be improbable. Therefore, no ACL was recorded for standby and commercial letters of credit as of ~~September 30, 2022.~~March 31, 2023.

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

~~(Continued)~~

~~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 ~~September 30, 2022.~~March 31, 2023.

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~~Inflation in the U.S. ~~remained~~remains high, ~~at 8.2% in September 2022,~~ primarily as a result of lingering effects from the COVID-19 pandemic and related governmental policies, ~~and exacerbated by the war in Ukraine.~~as well as other geo-political factors. 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~~the current cycle in March 2022, and has since raised interest rates by ~~300~~475 basis points through ~~October~~March 31, ~~2022.~~2023. Members of the Federal Open Markets Committee have signaled expectations for further rate increases that could result in an ~~approximately 125~~additional 25 basis point, or more, increase in the federal funds rate during the remainder of ~~2022, with potential additional increases in~~ 2023. If the Federal Reserve does ultimately continue to increase interest rates, we expect those increases to have a negative impact on our net income in the short term due to timing differences in asset and liability repricing, but ultimately a net positive impact on our net income, despite likely absolute increases in our operating expenses due to 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.

(Continued)

57.

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 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 10.0% for a 100 basis point shift, 15.0% for a 200 basis point shift and 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:


	September 30, 2022						December 31, 2021						March 31, 2023						December 31, 2022
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		0.95	%		(13.68	%)		13.70	%		1.57	%		(0.50	%)		(21.82	%)		0.43	%		(18.35	%)
+200		0.51	%		(7.90	%)		8.38	%		2.75	%		(0.51	%)		(13.38	%)		0.17	%		(10.87	%)
+100		(0.01	%)		(3.64	%)		2.66	%		1.27	%		(0.65	%)		(6.71	%)		(0.21	%)		(5.17	%)
Base		—			—			—			—			—			—			—			—
-100		0.40	%		0.91	%		(5.11	%)		(1.92	%)		0.60	%		2.97	%		0.34	%		1.48	%
-200		1.65	%		(5.06	%)		(14.47	%)		(0.36	%)		5.75	%		3.36	%		4.16	%		(0.70	%)

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.

(Continued)

58.

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 (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 September 30,						As of December 31,				As of March 31,						As of December 31,
(dollars in thousands, except per share data)	2022			2021			2021				2023			2022			2022
Tangible common equity
Equity attributable to Guaranty Bancshares, Inc.	$	288,084		$	297,408		$	302,214			$	299,700		$	291,880		$	295,558
Adjustments:
Goodwill		(32,160	)		(32,160	)		(32,160	)			(32,160	)		(32,160	)		(32,160	)
Core deposit intangible, net		(1,973	)		(2,426	)		(2,313	)			(1,746	)		(2,199	)		(1,859	)
Total tangible common equity attributable to Guaranty Bancshares, Inc.	$	253,951		$	262,822		$	267,741			$	265,794		$	257,521		$	261,539
Common shares outstanding(1)		11,915,372			12,081,477			12,122,717				11,925,357			12,066,480			11,941,672
Book value per common share	$	24.18		$	24.62		$	24.93			$	25.13		$	24.19		$	24.75
Tangible book value per common share		21.31			21.75			22.09				22.29			21.34			21.90

(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 72,411, 151,871 and 112,638 shares of common stock issuable upon exercise of outstanding stock options as of March 31, 2023 and 2022, and December 31, 2022, respectively.										(1) Excludes the dilutive effect, if any, of 72,411, 151,871 and 112,638 shares of common stock issuable upon exercise of outstanding stock options as of March 31, 2023 and 2022, and December 31, 2022, respectively.

(Continued)

59.

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 September 30, 2022

As of December 31, 2021

Total tangible common equity attributable to Guaranty Bancshares, Inc.

$
253,951

$
267,741

Tangible assets

Total assets

3,390,266

3,086,070

Adjustments:

Goodwill

(32,160
)

(32,160
)
Core deposit intangible, net

(1,973
)

(2,313
)
Total tangible assets

$
3,356,133

$
3,051,597

Total equity to total assets

8.50
%

9.79
%
Tangible common equity to tangible assets

7.57
%

8.77
%

~~(Continued)~~

~~65.~~


(dollars in thousands)	As of March 31, 2023			As of December 31, 2022
Total tangible common equity attributable to Guaranty Bancshares, Inc.	$	265,794		$	261,539
Tangible assets
Total assets		3,356,287			3,351,495
Adjustments:
Goodwill		(32,160	)		(32,160	)
Core deposit intangible, net		(1,746	)		(1,859	)
Total tangible assets	$	3,322,381		$	3,317,476

Total equity to total assets		8.93	%		8.80	%
Tangible common equity to tangible assets		8.00	%		7.88	%

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 Unrealized Loss on Securities, Tax Effected, as % of Total Equity


(dollars in thousands)	March 31, 2023
Total equity(1)	$	300,270
Less: net unrealized loss on HTM securities, tax effected		(25,123	)
Total equity, including net unrealized loss on AFS and HTM securities	$	275,147

Net unrealized loss on AFS securities, tax effected		15,308
Net unrealized loss on HTM securities, tax effected		25,123
Net unrealized loss on AFS and HTM securities, tax effected	$	40,431

Net unrealized loss on securities as % of total equity(1)		13.5	%
Total equity before impact of unrealized losses	$	315,578
Net unrealized loss on securities as % of total equity before impact of unrealized losses		12.8	%

Total average assets	$	3,325,005
Total equity to average assets		9.0	%
Total equity, adjusted for tax effected net unrealized loss, to average assets		8.3	%

(1) Includes the net unrealized loss on AFS securities, tax effected, of $15,308.

(Continued)

60.

Net Core Earnings and Net Core Earnings per Common Share


	Nine Months Ended September 30,						Three Months Ended September 30,						Three Months Ended June 30,			Three Months Ended March 31,						Three Months Ended December 31,
(dollars in thousands, except per share data)	2022			2021			2022			2021			2022			2023			2022			2023
Net earnings attributable to Guaranty Bancshares, Inc.	$	32,425		$	30,647		$	10,903		$	9,253		$	10,784		$	8,281		$	10,738		$	8,022
Adjustments:
Reversal of provision for credit losses		(650	)		(1,700	)		600			(700	)		—			—			(1,250	)		2,800
Income tax provision		7,070			6,827			2,363			2,179			2,472			1,823			2,235			1,764
PPP loans, including fees		(1,276	)		(6,864	)		(57	)		(1,005	)		(436	)		(2	)		(783	)		(1	)
Net core earnings attributable to Guaranty Bancshares, Inc.	$	37,569		$	28,910		$	13,809		$	9,727		$	12,820		$	10,102		$	10,940		$	12,585

Weighted-average common shares outstanding, basic		11,994,105			12,054,426			11,907,233			12,067,769			11,968,227			11,939,593			12,109,074			11,938,973
Earnings per common share, basic	$	2.70		$	2.54		$	0.92		$	0.77		$	0.90		$	0.69		$	0.89		$	0.67
Net core earnings attributable to Guaranty Bancshares, Inc. per common share, basic		3.13			2.40			1.16			0.81			1.07			0.85			0.90			1.05

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

Nine Months Ended
September 30,

Three Months Ended
September 30,

Three Months Ended
June 30,

(dollars in thousands)

2022

2021

2022

2021

2022

Net core earnings attributable to Guaranty Bancshares, Inc.

$
37,569

$
28,910

$
13,809

$
9,727

$
12,820

Total average assets

3,231,679

2,889,882

3,337,348

2,953,181

3,209,440

Adjustments:

PPP loans average balance

(15,581
)

(133,309
)

(1,159
)

(107,931
)

(8,885
)
Total average assets, adjusted

$
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

1.56

1.40

1.64

1.36

1.61

Total average equity

$
294,395

$
286,228

$
290,806

$
295,076

$
291,312

Net core earnings attributable to Guaranty Bancshares, Inc. to average equity

17.06

13.50

18.84

13.08

17.65

~~Total Interest-Earning Assets, net of PPP Effects~~

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

Total interest-earning assets

$
3,149,502

$
32,476

4.09
%

$
2,780,081

$
25,235

3.60
%

Total loans

2,191,411

27,455

4.97

1,921,005

22,605

4.67

Adjustments:

PPP loan average balance and net fees(1)

(1,159
)

(57
)

19.51

(107,931
)

(1,005
)

3.69

Total loans, net of PPP effects

2,190,252

27,398

4.96

1,813,074

21,600

4.73

Total interest-earning assets, net of PPP effects

$
3,148,343

$
32,419

4.09
%

$
2,672,150

$
24,230

3.60
%

(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
September 30, 2022

Quarter Ended
June 30, 2022

Quarter Ended
September 30, 2021

Net interest income

$
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

$
28,240

$
26,415

$
22,565

Total average interest-earning assets

$
3,149,502

$
3,020,390

$
2,780,081

Total average interest-earning assets, net of PPP effects

3,148,343

3,011,505

2,672,150

Net interest margin(1)

3.56
%

3.57
%

3.36
%
Net interest margin, net of PPP effects(2)

3.56

3.52

3.35

Net interest income

$
28,297

$
26,851

$
23,570

Interest income tax adjustments

215

301

278

Net interest income, fully taxable equivalent ("FTE")

$
28,512

$
27,152

$
23,848

Net interest income, FTE, net of PPP effects

28,455

26,716

22,843

Net interest margin, FTE(3)

3.59
%

3.61
%

3.40
%
Net interest margin, FTE, net of PPP effects(4)

3.59

3.56

3.39

(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.

(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%.

~~Efficiency Ratio, Net of PPP Effects~~

(dollars in thousands)

Quarter Ended
September 30, 2022

Quarter Ended
June 30, 2022

Quarter Ended
September 30, 2021

Total noninterest expense

$
20,237

$
19,694

$
19,287

Adjustments:

PPP-related deferred costs

—

—

—

Total noninterest expense, net of PPP effects

$
20,237

$
19,694

$
19,287

Net interest income

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

28,240

26,415

22,565

Total noninterest income

$
5,803

$
6,081

$
6,449

Efficiency ratio(1)

59.35
%

59.80
%

64.25
%
Efficiency ratio, net of PPP effects(2)

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.

(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
September 30, 2022

As of
June 30, 2022

As of
September 30, 2021

Total loans

$
2,266,065

$
2,138,376

$
1,970,881

Adjustments:

PPP loans

(576
)

(2,605
)

(75,304
)
Total loans, excluding PPP

$
2,265,489

$
2,135,771

$
1,895,577

Allowance for credit losses

$
29,235

$
28,997

$
30,621

Allowance for credit losses / period-end loans

1.29
%

1.36
%

1.55
%
Allowance for credit losses / period-end loans. excluding PPP

1.29

1.36

1.62

~~Loan Yield, Net of PPP Effects~~

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

Total loans

$
2,191,411

$
27,455

4.97
%

$
2,068,379

$
24,587

4.77
%
Adjustments:

PPP loans average balance and net fees

(1,159
)

(57
)

19.51

(8,885
)

(436
)

19.68

Total loans, net of PPP effects

$
2,190,252

$
27,398

4.96
%

$
2,059,494

$
24,151

4.70
%
Effect of removing PPP loans on loan yield

(0.01
%)

(0.07
%)


	Three Months Ended March 31,						Three Months Ended December 31,
(dollars in thousands)	2023			2022			2023
Net core earnings attributable to Guaranty Bancshares, Inc.	$	10,102		$	10,940		$	12,585
Total average assets		3,325,005			3,146,339			3,346,358
Adjustments:
PPP loans average balance		(519	)		(36,720	)		(539	)
Total average assets, adjusted	$	3,324,486		$	3,109,619		$	3,345,819
Net core earnings attributable to Guaranty Bancshares, Inc. to average assets, as adjusted		1.23			1.43			1.49
Total average equity	$	300,449		$	301,579		$	292,471
Net core earnings attributable to Guaranty Bancshares, Inc. to average equity		13.64			14.71			17.07

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;

(Continued)

61.

•

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,~~2022, 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

(Continued)

62.

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 ~~September 30, 2022~~March 31, 2023 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,~~2022, 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~~The following risk has been ~~no material changes in~~added to supplement 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.~~2022.

Recent volatility in the banking sector may result in new legislation, regulations or policy changes that could subject the Company and the Bank to increased government regulation and supervision.

The recent collapses of Silicon Valley Bank and Signature Bank have led to interventions by the FDIC, the Federal Reserve, and the U.S. Treasury Secretary in order to safeguard the depositors of these establishments. In light of these events, Congress and federal banking authorities have initiated assessments to pinpoint the causes of these failures, proposing various explanations such as insufficient regulation and oversight, as well as the institutions' inability to effectively manage interest rate and liquidity risks. Ongoing analysis of these developments might result in government-driven measures aimed at averting similar bank failures in the future, which could include changes to risk-based capital regulations. Federal banking authorities may also reconsider relevant liquidity risk management standards.

While it is impossible to definitively predict which measures lawmakers and regulatory bodies might adopt, or the specifics and extent of any such measures, any of the aforementioned potential changes could, among other consequences, impose additional costs on us, restrict the range of financial services and products the Bank is able to offer, and curtail the future expansion of both the Company and the Bank. These factors could substantially and negatively impact the Company's business, operational results, or financial standing.

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

(Continued)

63.

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

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


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
January, 2023		—	$	—		—		805,612
February, 2023		—		—		—		805,612
March, 2023		25,709		28.95		25,709		779,903
Total		25,709	$	28.95		25,709

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

(Continued)

64.

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.

10.1		Renewal Revolving Promissory Note between Guaranty Bancshares, Inc and Frost Bank, dated March 31, 2023 (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on March 31, 2023).

10.2		Loan Agreement between Guaranty Bancshares, Inc and Frost Bank, dated March 31, 2017, as amended (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on March 31, 2023).

10.3*		Employment Agreement, dated as of March 15, 2019, by and between Charles A. Cowell and Guaranty Bancshares, Inc.

10.4*		Employment Agreement, dated as of September 21, 2020, by and between Harold E. Lower, II, and Guaranty Bancshares, Inc.

10.5*		Executive Deferred Contribution Plan (adopted effective January 1, 2022)

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.~~65.

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: ~~November 4, 2022~~May 5, 2023		/s/ Tyson T. Abston
		Tyson T. Abston
		Chairman of the Board & Chief Executive Officer

Date: ~~November 4, 2022~~May 5, 2023		/s/ Clifton A. Payne
		Clifton A. Payne
		Chief Financial Officer & Director

~~72.~~66.


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


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


Nine Months Ended September 30, 2021	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at beginning of year		506,200		$	26.81		5.82	$	1,805
Effect of 10% stock dividend		50,770
Granted		45,500			33.49
Exercised		(48,630	)		22.89
Forfeited		(19,020	)		26.01
Balance, September 30, 2021		534,820		$	25.22		5.53	$	5,684

Exercisable at end of period		307,786		$	23.78		4.33	$	3,715


December 31, 2021
Notional Amount		Pay Rate			Receive Rate	Effective Date	Maturity in Years		Unrealized (Gains) Losses
$	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	)


	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


	Quarter Ended September 30,
(dollars in thousands, except per share data)	2022			2021
Net earnings attributable to Guaranty Bancshares, Inc.	$	10,903		$	9,253
Net earnings attributable to Guaranty Bancshares, Inc. per common share
-basic		0.92			0.77
-diluted		0.91			0.76
Net interest margin(1)		3.56	%		3.36	%
Net interest rate spread(2)		3.22	%		3.21	%
Return on average assets		1.30	%		1.24	%
Return on average equity		14.87	%		12.44	%
Average equity to average total assets		8.71	%		9.99	%
Cash dividend payout ratio		23.91	%		25.97	%

(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.


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

Total loans		2,191,411			27,455			4.97
Adjustments:
PPP loans average balance and net fees(1)		(1,159	)		(57	)		19.51
Total loans, net of PPP effects	$	2,190,252		$	27,398			4.96	%

Total interest-earning assets, net of PPP effects†	$	3,148,343		$	32,419			4.09	%


Net interest income, fully taxable equivalent ("FTE")				$	28,512
Net interest margin, FTE								3.59	%
Net interest income, net of PPP effects†					28,455
Net interest margin, FTE, net of PPP effects†								3.59	%

† 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 $4,000 and net origination fees recognized in earnings of $53,000 for the quarter ended September 30, 2022.


(in thousands)	As of September 30, 2022		As of December 31, 2021		Increase (Decrease)			Percent Change
Commercial and industrial(1)	$	289,029	$	324,289	$	(35,260	)		(10.87	%)
Real estate:
Construction and development		391,564		307,797		83,767			27.22	%
Commercial real estate		821,941		622,842		199,099			31.97	%
Farmland		179,402		145,501		33,901			23.30	%
1-4 family residential		467,983		410,673		57,310			13.96	%
Multi-family residential		43,025		30,971		12,054			38.92	%
Consumer and overdrafts		59,204		51,328		7,876			15.34	%
Agricultural		13,917		14,639		(722	)		(4.93	%)
Total loans held for investment	$	2,266,065	$	1,908,040	$	358,025			18.76	%

Total loans held for sale	$	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.


	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
Total interest-earning assets	$	3,149,502		$	32,476			4.09	%	$	2,780,081		$	25,235			3.60	%

Total loans		2,191,411			27,455			4.97			1,921,005			22,605			4.67
Adjustments:
PPP loan average balance and net fees(1)		(1,159	)		(57	)		19.51			(107,931	)		(1,005	)		3.69
Total loans, net of PPP effects		2,190,252			27,398			4.96			1,813,074			21,600			4.73

Total interest-earning assets, net of PPP effects	$	3,148,343		$	32,419			4.09	%	$	2,672,150		$	24,230			3.60	%

(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.


(dollars in thousands)	Quarter Ended September 30, 2022			Quarter Ended June 30, 2022			Quarter Ended September 30, 2021
Net interest income	$	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	$	28,240		$	26,415		$	22,565

Total average interest-earning assets	$	3,149,502		$	3,020,390		$	2,780,081
Total average interest-earning assets, net of PPP effects		3,148,343			3,011,505			2,672,150

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

Net interest income	$	28,297		$	26,851		$	23,570
Interest income tax adjustments		215			301			278
Net interest income, fully taxable equivalent ("FTE")	$	28,512		$	27,152		$	23,848
Net interest income, FTE, net of PPP effects		28,455			26,716			22,843

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

(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.
(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%.


(dollars in thousands)	As of September 30, 2022			As of June 30, 2022			As of September 30, 2021
Total loans	$	2,266,065		$	2,138,376		$	1,970,881
Adjustments:
PPP loans		(576	)		(2,605	)		(75,304	)
Total loans, excluding PPP	$	2,265,489		$	2,135,771		$	1,895,577

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

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


	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
Total loans	$	2,191,411		$	27,455			4.97	%	$	2,068,379		$	24,587			4.77	%
Adjustments:
PPP loans average balance and net fees		(1,159	)		(57	)		19.51			(8,885	)		(436	)		19.68
Total loans, net of PPP effects	$	2,190,252		$	27,398			4.96	%	$	2,059,494		$	24,151			4.70	%
Effect of removing PPP loans on loan yield								(0.01	%)								(0.07	%)


	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
Total loans	$	2,191,411		$	27,455			4.97	%	$	1,921,005		$	22,605			4.67	%
Adjustments:
PPP loans average balance and net fees		(1,159	)		(57	)		19.51			(107,931	)		(1,005	)		3.69
Total loans, net of PPP effects	$	2,190,252		$	27,398			4.96	%	$	1,813,074		$	21,600			4.73	%
Effect of removing PPP loans on loan yield								(0.01	%)								0.06	%